UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
 
 Form
10-K
 (Mark
One)
 
 x
              ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the fiscal year ended December 31,
2009
  or
 
  ̈
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the transition period from 
to_________________
 
 Commission
file number  001-04668
 
 Coastal Caribbean Oils &
Minerals, Ltd.
 (Exact name of Registrant as
specified in its charter)
 
 BERMUDA
                  NONE(State
      or Other Jurisdiction of Incorporation or Organization)
                  (I.R.S.
      Employer Identification No.)Clarendon House, Church Street,
      Bermuda
                  HM 11(Address
      of Principle Executive Offices)
                  (Zip
      Code)
 
 Registrant’s
telephone number, including area code:
 (850)
556-5924
 
 Securities
registered pursuant to Section 12(b) of the Act:
 
 Title of each class
                  NONE
                Name of each exchange on which
      registered
                  NONE
 
 Securities
registered pursuant to Section 12(g) of the Act:
 
 Title of
Class
  Common stock, par value $.12 per
share
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act.                 o  Yes       x  No
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act.                 o  Yes       x  No
 
 Note–Checking the box above
will not relieve any registrant required to file reports pursuant to Section 13
or 15(d) of the Exchange Act from their obligations under those
Sections.
 
 Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.x  Yes       o  No
 
 Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form
10-K.                                                                                                                                                                    o Yesx No
 
 Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
 
 Large
      accelerated filer o
                Accelerated
      filer oNon-accelerated
      filer o (Do
      not check if smaller reporting company)
                Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x No
 
 State the aggregate market value of the
voting and non-voting common equity held by non-affiliates computed by reference
to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter: $2,295,203 (U.S.) at
June 30, 2009.
 
 Note – If a determination as
to whether a particular person or entity is an affiliate cannot be made without
involving unreasonable effort and expense, the aggregate market value of the
common stock held by non-affiliates may be calculated on the basis of
assumptions reasonable under the circumstances, provided that the assumptions
are set forth in this Form.
 
 Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date:  Common stock, par value $.12 per share,
62,270,270 shares outstanding as of April 8, 2010.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 List
hereunder the following documents if incorporated by reference and the Part of
the Form 10K (e.g. Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.  The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980).
 
 None
  
 
 TABLE OF
CONTENTS
 
 PagePART
      IItem
      1.
                                                          Business
                                                          3General
                                                          3Crude
      Oil and Natural Gas Exploration and Development
                                                          3Environmental
      and Other Regulations
                                                          4Competition
                                                          5Employees
                                                          5Oil
      and Gas Properties
                                                          5Acreage
      and Wells
                                                          7Drilling
      Activity
                                                          7Item
      1B.
                                                          Unresolved
      Staff Comments
                                                          7Item
      2.
                                                          Properties
                                                          8Item
      3.
                                                          Legal
      Proceedings
                                                          8Item
      4.
                                                          (Removed
      and Reserved)
                                                          8PART
      IIItem
      5.
                                                          Market
      for the Company's Common Stock, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                          9Item
      6.
                                                          Selected
      Consolidated Financial Data
                                                          11Item
      7.
                                                          Management's
      Discussion and Analysis of Financial Condition and Results of
      Operation
                                                          12Item
      7A.
                                                          Quantitative
      and Qualitative Disclosures About Market Risk
                                                          16Item
      8.
                                                          Financial
      Statements and Supplementary Data
                                                          17Item
      9.
                                                          Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                          31Item
      9A.
                                                          Controls
      and Procedures
                                                          31PART
      IIIItem
      10.
                                                          Directors
      and Executive Officers of the Registrant
                                                          33Item
      11.
                                                          Executive
      Compensation
                                                          35Item
      12.
                                                          Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                                          42Item
      13.
                                                          Certain
      Relationships and Related Transactions
                                                          44Item
      14.
                                                          Principal
      Accountant Fees and Services
                                                          45PART
      IVItem
      15.
                                                          Exhibits,
      Financial Statement Schedules
                                                          46
 
 All
monetary figures set forth are expressed in United States
currency.
  2
  PART I
 
 Item 1.  Business
 
 Company
Website
 
 The Company has a website located at
http://www.coastalcarib.com.  The
website can be used to access recent news releases, Securities and Exchange
Commission (“SEC”) filings, and other items of interest.   The
contents of the Company’s website are not incorporated into this
document.  Securities and Exchange Commission filings, including
supplemental schedules and exhibits can also be accessed free of charge through
the SEC website at http://www.sec.gov.
 
 General
 
 Coastal Caribbean Oils & Minerals,
Ltd.  (“Company” or “Coastal Caribbean”), was organized in Bermuda on
February 14, 1962.  The Company is the successor to Coastal Caribbean
Oils, Inc., a Panamanian corporation organized on January 31, 1953 to be the
holding company for Coastal Petroleum Company (“Coastal
Petroleum”).  Coastal Caribbean, has been engaged, through its
subsidiary, Coastal Petroleum, in the exploration for oil and gas
reserves.  At December 31, 2009, Coastal Caribbean's principal asset
was its 100% interest in its subsidiary Coastal Petroleum.  Coastal
Petroleum's principal assets are its nonproducing oil and gas leases in the
States of Montana and North Dakota in a fertile oil producing region know as the
Williston Basin. Coastal Petroleum is the lessee under leases relating to the
exploration for and production of oil and gas on approximately 35,873 net acres
of land in Valley County, Montana and approximately 8,510 net acres of land in
Billings, Slope and Stark Counties, North Dakota.
 
 Prior to
acquiring leases in Montana and North Dakota, and beginning in the 1940’s the
Company held State of Florida oil, gas and mineral leases covering approximately
3,700,000 acres of submerged lands along the Gulf Coast and under certain inland
lakes and rivers.  For more than 15 years, the State of Florida used
laws, policies and permit denials to prevent Coastal Petroleum from using its
leases.  The Company vigorously litigated to be able to use its leases
or to be compensated for the State’s taking of them, but Florida courts
ultimately ruled against the Company.  On June 1, 2005, the Company,
Coastal Petroleum and other royalty holders, based upon the court decisions and
State policies, entered an agreement to exchange mutual releases, dismiss
pending actions and to surrender the leases and royalty rights back to the State
of Florida in exchange for a total compensation of $12.5 million to be divided
among the parties in interest.  The Company and its subsidiary
received approximately $4,872,000 in net proceeds and the Company regained 100%
ownership of its subsidiary, Coastal Petroleum.
 
 The Company has utilized the funds it
received from the Agreement with the State of Florida to acquire the leases in
Montana and North Dakota described above and to begin drilling
there.  No economical oil or gas discoveries have yet been made on
these properties; therefore, the Company has no proved reserves of oil and gas
and has had no production.
 
 Crude Oil and Natural Gas
Exploration
 
 Through its wholly owned subsidiary,
Coastal Petroleum, the Company has begun to explore for oil and gas in Montana,
although during 2009, the Company’s primary activity was seeking capital to fund
its Drilling Program.  The Company is continuing its effort to raise
capital.
 
 Under an
agreement with Western Standard Energy Corp. (“Western Standard”) a well, the
Federal 1-19, was drilled on our Valley County, Montana Leases to test a shallow
gas prospect during October 2007. The well reached a total depth of 1,126 feet
and confirmed the structural high that was targeted. The well also had gas shows
in two zones. Casing was run into the hole but operations to complete and test
the well did not take place until the second and third quarters of 2008 at which
time the Company engaged in three stages of completion operations, including
stimulation of the well, a common procedure in completing oil and gas
wells.
  3
  The Company was unable to determine by
this well whether the target formations contain economic quantities of
gas.  Drilling damage in the well prevented the testing of either of
the prospective formations at this location.  Completion efforts found
that the Eagle formation was damaged by the initial drilling and the formation
was not able to be tested from this well.  Further drilling into the
Eagle formation during completion did not yield gas like the gas show seen from
the upper part of the formation that was damaged.  The Judith River
formation, a secondary target, was damaged by drilling fluids lost into the
formation while drilling through it to get to the Eagle formation, the primary
target.  Future wells to test this structure will incorporate the
information obtained from these wells to prevent that damage from occurring
again in other locations on the structure.
 
 Western Standard had 30 days after the
completion of the Federal 1-19 to exercise an option to purchase a 50% interest
in approximately 42,000 acres near the well location (referred to as “Valley
County Shallow Gas Assembly”) for $1,000,000, but the deadline passed without
being exercised.   Western Standard no longer has an interest in
these leases and Coastal Petroleum is now in control of them again.
 
 On November 3, 2007, F-Cross Resources,
LLC (“F-Cross”) spudded the first well under an Agreement with the
Company.  The well was drilled to test a Lodgepole reef oil prospect
and drilling on the well has finished and is awaiting completion.  As
of this time it is uncertain whether F-Cross will proceed with
completion.  F-Cross did not meet the requirements in the agreement
and in late March 2008 the option to acquire an interest in the additional
64,000 acres covered by the agreement expired, leaving F-Cross with rights only
in the section in which it drilled the well.
 
 The Company also drilled a well, with
several other participants, in Valley County, Montana which was a twin to the
Evaline 1-18 well, the only Lodgepole producer in Montana.  The
drilling began on September 5, 2006, reached the targeted Lodgepole reef and
encountered oil, but there were not sufficient quantities of oil to be
economical for the Company to develop.  The well was abandoned during
2007.
 
 The
Company is actively engaged in pursuing funding for our Drilling
Program.  The Program is an aggressive $9,500,000 exploration
operation which would allow the Company to explore the potential of each of the
areas held under its leases.  The Program covers exploration in three
areas: a development Red River Formation prospect in Slope County, North Dakota,
on approximately 400 acres the Company acquired; the drilling of three Lodgepole
Formation prospects on the Company’s North Dakota Leases; and twelve step out
wells from the Federal 1-19 well on the Starbuck East prospect in
Montana.  The Drilling Program is currently being reviewed by
prospective funding parties.  The Company is proceeding with the
relativily inexpensive process of permitting wells in its main block of leases
in Valley County, Montana, in order to accommodate the drilling of the expected
wells.  We have no assurances at this time that any funding will be
available for the Drilling Program.  During 2009 the Company had
discussions and negotiations with multiple parties in its effort to obtain up to
$10 million in capital to fund the Company’s exploration of its
leases.  The Company continues discussions with other parties to
secure the capital to fund the Drilling Plan.
 
 Environmental Regulation
  Coastal
Caribbean is committed to responsible management of the environment, health and
safety, as these areas relate to the Company’s operations. The Company strives
to achieve the long-term goal of sustainable development within the framework of
sound environmental, health and safety practices and standards.
  All
facets of the Company's operations are affected by a myriad of federal, state,
regional and local laws, rules and regulations. The Company is further affected
by changes in such laws and by constantly changing administrative regulations.
Furthermore, government agencies may impose substantial penalties if the Company
fails to comply with such regulations or for any contamination resulting from
the Company's operations.
  The costs
incurred to ensure compliance with environmental, health and safety laws and
other regulations are inextricably connected to normal operating expenses such
that the Company is unable to separate the expenses related to these
matters.
  When
acting as the operator and conducting drilling operations, Coastal Caribbean
maintains insurance coverage that it believes is customary in the industry
although it is not fully insured against all environmental or other risks. The
Company is not currently conducting drilling operations and therefore does not
currently have such insurance.  The Company is not aware of any
environmental claims existing as of December 31, 2009 that would have a material
impact upon the Company's financial position, results of operations, or
liquidity.
  4
  Regulation
of Oil and Gas
  The oil
and gas industry is extensively regulated by numerous federal, state and local
authorities. Legislation affecting the oil and gas industry is under constant
review for amendment or expansion, frequently increasing the regulatory burden.
Also, numerous departments and agencies, both federal and state are authorized
by statute to issue rules and regulations binding on the oil and gas industry
and its individual members, some of which carry substantial penalties for
failure to comply. Although the regulatory burden on the oil and gas industry
increases the Company's cost of doing business and, consequently, may affect
profitability, these burdens generally do not affect the Company any differently
or to any greater or lesser extent than they affect other companies in the
industry with similar types, quantities and locations of
production.
  The
Company's operations are subject to various types of regulation at federal,
state and local levels. These types of regulation include requiring permits for
the drilling of wells, drilling bonds and reports concerning operations. Most
states, and some counties and municipalities in which the Company operates may
also regulate one or more of the following: the location of wells; the method of
drilling and casing wells; the rates of production or "allowables;" the surface
use and restoration of properties upon which wells are drilled; the plugging and
abandoning of wells; and notice to surface owners and other third
parties.
  State
laws regulate the size and shape of drilling and spacing units or proration
units governing the pooling of oil and natural gas properties. Some states allow
forced pooling or integration of tracts to facilitate exploration while other
states rely on voluntary pooling of lands and leases. In some instances, forced
pooling or unitization may be implemented by third parties and may reduce the
Company's interest in the unitized properties. In addition, state conservation
laws establish maximum rates of production from oil and natural gas wells,
generally prohibit the venting or flaring of natural gas, and impose
requirements regarding the ratability of production. These laws and regulations
may limit the amount of oil and natural gas the Company can produce from its
wells or limit the number of wells or the locations at which it can
drill.
  Moreover,
each state generally imposes a property, production or severance tax with
respect to the production and sale of oil, natural gas and natural gas liquids
within its jurisdiction.
 
 Competition
 
 The oil
and gas industry is highly competitive. The Company must compete with other
companies that have substantially greater resources available to
them.  As an independent, the Company does not own any refining or
retail outlets and, therefore, it would have little control over the price it
may receive for any crude oil it produces. In acquisition activities,
significant competition exists as integrated and independent companies and
individual producers are active bidders for desirable oil and gas properties.
Although many of these competitors have greater financial and other resources
than the Company, Management believes that Coastal Caribbean is in a position to
compete effectively due to its low cost structure, transaction flexibility,
experience and determination.
  Employees
 
 The Company currently has one
employee.  The Company relies heavily on consultants for legal,
accounting, geological and administrative services.  The Company uses
consultants because it believes it is more cost effective than employing a
larger full time staff.
 
 Oil and Gas
Properties
 
 Williston
Basin
 
 Valley
County, Montana
 
 The Company’s assets in Valley County
consist of leases covering approximately 35,873 net acres.  The
Company’s working interest in these properties is 100% and would be reduced to
75% at payout, except as modified by the agreements described
below.  Most of the leases were acquired during 2005, but some were
included in approximately 27,780 gross acres (27,740 net acres) the Company
acquired in February of 2006, most of which expired in March
2009.  Two wells have been drilled on the leases held by the Company
but one has not yet been completed and tested and the other was damaged during
drilling and could not be tested, so the Company has no proved reserves on the
property as yet.  The Company currently has one active agreement
covering part of its Valley County Leases.  Two other agreements
covering areas of the Valley County Leases expired during 2008.
  5
  In May 2008, we entered an agreement
with Cobra.  Under the agreement, Cobra paid Coastal $180,000 for the
option to acquire a half interest in approximately 87,000 acres of Coastal’s
Valley County Leases.  The agreement allowed the Company to pay its
Lease rentals that were due on June 1, 2008, and brought in a new party to
explore on the Leases. Cobra has until May 2010 to exercise the option by
spending $1,000,000 on behalf of the Company, drilling wells on the leases
covered by the agreement.  Those leases included approximately 62,000
acres of leases that were formally under an agreement with F-Cross Resources
that expired in 2008 and more than 17,000 acres of other leases Coastal held in
Valley County.  No drilling has taken place yet under this
agreement.
 
 During 2008, two agreements the Company
had with other entities on the Valley County Leases expired.  First,
in August 2007, the Company entered into a farm-out agreement with Western
Standard.  Under the agreement, Western Standard paid $40,000 to
Coastal and then paid an additional $384,000 to cover the costs of drilling the
first well to test a shallow natural gas prospect in Valley County, Montana and
to cover associated lease rentals.  Western Standard would have had an
interest in that well and the option to purchase a 50% interest in approximately
37,000 acres near the well location for $1,000,000, payable in $200,000
installments based on certain milestones related to drilling step-out
wells.
 
 The first well under the agreement with
Western Standard was drilled during October 2007, and reached a total depth of
1,126 feet, casing was run into the hole after there were gas shows at two
horizons during drilling.  The Company was unable to determine by this
well whether the target formations contain economic quantities of
gas.  Drilling damage in the well prevented the testing of either of
the prospective formations at this location.  Completion efforts found
that the Eagle formation was damaged by the initial drilling and the formation
was not able to be tested from this well.  Further drilling into the
Eagle formation during completion did not yield gas like the gas show seen from
the upper part of the formation that was damaged.  The Judith River
formation, a secondary target, was damaged by drilling fluids lost into the
formation while drilling through it to get to the Eagle formation, the primary
target.  Future wells to test this structure will incorporate the
information obtained from these wells to prevent that damage from occurring
again in other locations on the structure.
 
 It is not unusual that the first well
confirming a structure does not become a producing well.  The test
well did produce valuable information about the two gas bearing formations and
their potential for economically feasible commercial gas
production.  Problems encountered in drilling the test well can now be
avoided when future wells are drilled on the Starbuck East
Prospect.  With the first two objectives met, the Company will now
focus on achieving the third objective, specifically finding commercial gas in
either the Eagle or Judith River formations.
 
 Western Standard had 30 days after the
completion of the Federal 1-19 to exercise an option to purchase a 50% interest
in approximately 37,000 acres near the well location for $1,000,000, but the
deadline passed without being exercised.   Western Standard no
longer has an interest in these leases.
 
 The Company’s agreement with F-Cross
was the other agreement that expired in 2008.  Originally entered in
September 2007, the Company received $50,000 from F-Cross under the farm-out
agreement covering approximately 64,000 acres on the northwest part of the
Company’s Valley County Leases.  F-Cross had the option to drill a
Lodgepole test well at its cost within six months and after drilling that well
had the further option to acquire an interest in surrounding
acreage.  On November 3, 2007, F-Cross spudded the first well under
the Agreement with the Company to test a Lodgepole reef oil
prospect.  Drilling on the well has finished, but as of this time it
is uncertain whether F-Cross will proceed with completion.  F-Cross,
however, did not meet the requirements in the agreement and in late March 2008
the option to acquire an interest in the additional 64,000 acres covered by the
agreement expired, leaving F-Cross with rights only in the section in which it
drilled the well.
  6
 
 Billings,
Slope and Stark Counties, North Dakota
 
 The
Company owns leases covering approximately 8,510 net acres in these three
counties.  Generally, the Company’s working interest in these
properties is 100% and at payout is reduced to 75%.  However, under a
farm-out agreement with Western Standard, Coastal assigned leases over four of
its high-graded Lodgepole Reef prospects to Western Standard in return for
$80,000.  Coastal retains a back-in working interest of 20% in those
leases after payout.  The leases cover all rights below the Tyler
formation, including the Lodgepole formation, with an 80% net revenue interest.
These and other leases in the area were acquired in 2005 by Coastal from Oil For
America for $50,000 and Coastal has invested some additional funds to
geochemically test and high-grade these and other prospects on the
leases.  Oil For America has agreed to waive the drilling obligation
on the four prospects assigned to Western Standard.  After the
assignment, Coastal still retains additional Lodgepole reef prospects on its
North Dakota leases under the general working interest described
above.  The Company has not yet begun any drilling on the property and
has no proved reserves on the property.
 
 Acreage and
Wells
 
 The
following chart reflects the approximate acreage held under lease by Coastal
Caribbean through its wholly owned subsidiary Coastal Petroleum, at
December 31, 2009:
 
 Acreage under lease at December
31, 2009
 
 Gross Acres(1)
                        
                        
                        Net Acres(2)Lease Location
                        
                        Undeveloped
                        
                        
                        Developed
                        
                        
                        Undeveloped
                        
                        
                        DevelopedMontana
                        
                        
                        35,873.00
                        
                        
                        
                        0
                        
                        
                        
                        35,873.00
                        
                        
                        
                        0North
      Dakota
                        
                        
                        8,748.94
                        
                        
                        
                        0
                        
                        
                        
                        8,510.31
                        
                        
                        
                        0Total:
                        
                        
                        44,621.94
                        
                        
                        
                        0
                        
                        
                        
                        44,383.31
                        
                        
                        
                        0
 
 (1)
              A
      gross acre is an acre in which a working interest is
  owned.
 (2)
              A
      net acre is deemed to exist when the sum of fractional ownership working
      interests in gross acres equals one.  The number of net acres is
      the sum of the fractional working interests owned in gross acres expressed
      as whole numbers and fractions
thereof.
 
 No wells were drilled in 2008 or 2009,
but, completion efforts were undertaken on one well in 2008, on our
leases.
 
 Drilling
Activity
 
 During
2009 no wells were drilled because the Company was seeking funding for drilling
on its leases.
 
 During
2008 no wells were drilled, but completion efforts were undertaken on the
Federal 1-19 well drilled in 2007.  The well could not be tested
because of damage.  The results for that well are discussed
below.
 
 Item 1B.            
Unresolved Staff
Comments
 
 None
  7
  Item 2.  Properties
 
 Properties
 
 Information required by Item 2
“Properties” is included under Item 1 “Business.”
 
 Disclosure Concerning Oil
and Gas Operations.
 
 Since the properties in which the
Company has interests are undeveloped and nonproducing, items 2 through 4 of
Securities Exchange Act Industry Guide 2 are not applicable.
 
 (5)      
   Undeveloped
Acreage.
 
 The Company's undeveloped acreage as of
December 31, 2009, was as follows:
 
 Gross Acres
                    
                    
                    Net AcresMontana
                    
                    
                    35,873.00
                    
                    
                    
                    35,873.00North
      Dakota
                    
                    
                    8,748.94
                    
                    
                    
                    8,510.31Total:
                    
                    
                    44,621.94
                    
                    
                    
                    44,383.31
 
 (6)  
       Drilling Activity.
 
 No wells
were drilled in 2009.  See Drilling Activity section under Item 1
Business at page 8.
 
 (7)    
     Present Activities.
 
 See Drilling Activity section under
Item 1 Business at page 8.
 
 Item 3.  Legal Proceedings
 
 During the third quarter of 2009, the
Company was involved as a defendant in a case entitled American Pipe & Supply Co. v.
Coastal Petroleum Company, et.al, Cause No. DV 08-63, in the Montana
Seventeenth Judicial District Court in Valley County, Montana. This claim is in
relation to the failure of our farmee, F-Cross, who has filed for bankruptcy, to
pay for pipe purchased from the Plaintiff to drill the State 7-16 well. The
claim seeks relief against Coastal Petroleum Company: to foreclose an oil and
gas lien on the single part of one lease involved which was held in Coastal
Petroleum Company’s name and is now held by F. Cross; and damages for breach of
contract and quantum meruit in the amount of about $80,000. Because the farmee
has filed bankruptcy the proceeding is in abeyance. Coastal has filed an answer
and its counsel advises it is likely that only the claim to foreclose the lien
should withstand a motion for summary judgment by Coastal. While it is likely
that the Plaintiff will obtain the lien, this lien would only apply to the small
area under that specific lease that was drilled. As of December 31, 2009, we had
an outstanding invoice for $800 due to the Coastal’s counsel in the case, which
was been paid in full in January 2010.
 
 Except as described in the preceding
paragraph, to the best knowledge of our management, there are no material
litigation matters pending or threatened against us.
 
 Item 4.  (Removed and
Reserved).
  8
 
 PART II
 
 Item
      5.
              Market for the
      Company's Common Stock, Related Stockholder Matters and Issuer
      Purchases of Equity
Securities
 
 Market Information.
 
 The principal market for the Company's
common stock is in the over-the-counter market on the "Electronic Bulletin
Board" of the National Association of Securities Dealers, Inc. under the symbol
COCBF.  The
quarterly high and low closing prices on the Electronic Bulletin Board during
the last two years were as follows:
 
 2008
                    
                    1stquarter
                    
                    
                    2ndquarter
                    
                    
                    3rdquarter
                    
                    
                    4thquarterHigh
                    
                    
                    0.12
                    
                    
                    
                    0.23
                    
                    
                    
                    0.32
                    
                    
                    
                    0.15Low
                    
                    
                    0.095
                    
                    
                    
                    0.09
                    
                    
                    
                    0.10
                    
                    
                    
                    0.021
 
 2009
                    
                    1stquarter
                    
                    
                    2ndquarter
                    
                    
                    3rdquarter
                    
                    
                    4thquarterHigh
                    
                    
                    0.07
                    
                    
                    
                    0.06
                    
                    
                    
                    0.05
                    
                    
                    
                    0.05Low
                    
                    
                    0.02
                    
                    
                    
                    0.04
                    
                    
                    
                    0.03
                    
                    
                    
                    0.03
 
 Holders.
 
 The approximate number of record
holders of the Company's common stock at April 8, 2010 was 8,295.
 
 Dividends.
 
 The Company has never declared or paid
dividends on its common stock and it does not anticipate declaring or paying any
dividends in the foreseeable future.  The Company plans to retain any
future earnings to reduce the deficit accumulated during the development stage
of $38,856,970 at December 31, 2009 and to fund its operations.
 
 Foreign Exchange Control Regulations
 
 The Company is subject to the
applicable laws of The Islands of Bermuda relating to exchange control, but has
the permission of the Foreign Exchange Control of Bermuda to carry on business
in, to receive, disburse and hold United States dollars and dollar securities
under its designation as an External Account Company.  The Company has
been advised that, although as a matter of law it is possible for such
designation to be revoked, there is little precedent for revocation under
Bermuda law.
 
 Income
and Withholding Taxes
 
 Coastal Caribbean is a Bermuda
corporation.  Bermuda currently imposes no taxes on corporate income
or capital gains realized outside of Bermuda.  Any amounts received by
Coastal Caribbean from United States sources as dividends, interest, or other
fixed or determinable annual or periodic gains, profits and income, will be
subject to a 30% United States withholding tax.  In addition, any
dividends from its domestic subsidiary, Coastal Petroleum, will not be eligible
for the 100% dividends received deduction, which is allowable in the case of a
United States parent corporation.  Shares of the Company held by
persons who are citizens or residents of the United States are subject to
federal estate and gift and local inheritance taxation.  Any dividends
received by such persons will also be subject to federal, State and local income
taxation.  The foregoing rules are of general application only, and
reflect law in force as of the date of this report.
  9
 
 A convention between Bermuda and the
United States relating to mutual assistance on tax matters became operative in
1988.
 
 Passive
Foreign Investment Company Rules
 
 The Internal Revenue Code of 1986, as
amended, provides special rules for distributions received by U.S. holders on
stock of a passive foreign investment company (PFIC), as well as amounts
received from the sale or other disposition of PFIC stock.
 
 Under the
PFIC rules, a non-U.S. corporation will be classified as a PFIC for U.S. federal
income tax purposes in any taxable year in which, after applying certain
look-through rules, either (1) at least 75 percent of its gross income is
passive income or (2) at least 50 percent of the gross value of its assets is
attributable to assets that produce passive income or are held for the
production of passive income.
 
 Passive income for this purpose
generally includes dividends, interest, royalties, rents, and gains from
commodities and securities transactions. Special rules apply in cases where a
foreign corporation owns directly or indirectly at least a 25 percent interest
in a subsidiary, measured by value.  In this case, the foreign
corporation is treated as holding its proportionate share of the assets of the
subsidiary and receiving directly its proportionate share of the income of the
subsidiary when determining whether it is a PFIC.  Thus, Coastal
Caribbean would be deemed to receive its pro rata share of the income and to
hold its pro rata share of the assets, of Coastal Petroleum.
 
 Based on
certain estimates of its gross income and gross assets and the nature of its
business, Coastal Caribbean would be classified as a PFIC for the years 1987
through 2006.  Once an entity is considered a PFIC for a taxable year,
it will be treated as such for all subsequent years with respect to owners
holding the stock in a year that it was classified as a PFIC under the income or
asset test described above. Whether the Company will be a PFIC under either of
these tests in future years will be difficult to determine because the tests are
applied annually.  Based upon the estimated gross income of the
Company during 2009, the major source of the income being the relatively small
amount of interest the Company received, the Company believes that it may be
classified as a PFIC for the year 2009.
 
 If Coastal Caribbean is classified as a
PFIC with respect to a U.S. holder any gain from the sale of, and certain
distributions with respect to, shares of our common stock, would cause a U.S.
holder to become liable for U.S. federal income tax under Code section 1291 (the
interest charge regime).  The Company recommends that any such U.S.
holder should consult his or her own tax advisor on this issue.  The
tax is computed by allocating the amount of the gain on the sale or the amount
of the distribution, as the case may be, to each day in the U.S. shareholder’s
holding period.  To the extent that the amount is allocated to a year,
other than the year of the disposition or distribution, in which the corporation
was treated as a PFIC with respect to the U.S. holder, the income will be taxed
as ordinary income at the highest rate in effect for that year, plus an interest
charge.  The interest charge would generally be calculated as if the
distribution or gain had been recognized ratably over the U.S. holder's holding
period (for PFIC purposes) for the shares.  To the extent an amount is
allocated to the year of the disposition or distribution, or to a year before
the first year in which the corporation qualified as a PFIC, the amount so
allocated is included as additional gross income for the year of the disposition
or distribution.   A U.S. holder also would be required to make
an annual return on IRS Form 8621 that describes any distributions received with
respect to our shares and any gain realized on the sale or other disposition of
our shares.
 
 As an alternative to taxation under the
interest charge regime, a U.S. holder generally can elect, subject to certain
limitations, to annually take into gross income the appreciation or depreciation
in our common shares' value during the tax year (mark-to-market election). If a
U.S. holder makes the mark-to-market election, the U.S. holder will not be
subject to the above-described rule.   Instead, if a U.S. holder
makes the mark-to-market election, the U.S. holder recognizes each year an
amount equal to the difference as of the close of the taxable year between the
U.S. holder's fair market value of the common shares and the adjusted basis in
the common shares. Losses would be allowed only to the extent of net gain
previously included by the U.S. holder under the mark-to-market election for
prior taxable years. Amounts included in or deducted from income under the
mark-to-market election and actual gains and losses realized upon the sale or
disposition of the common shares, subject to certain limitations, will be
treated as ordinary gains or losses.   If the mark-to-market
election is made for a year other than the first year in the U.S. holder’s
holding period in which the corporation was a PFIC, the first year’s
mark-to-market inclusion, if any, is taxed as if it were a distribution subject
to the interest charge regime discussed above.
  10
 
 Another
alternative election which would allow a U.S. holder to elect to take its pro
rata share of Coastal Caribbean's undistributed income into gross income as it
is earned by Coastal Caribbean (QEF election) would only be available to a U.S.
holder if Coastal Caribbean provided certain information to the shareholders of
Coastal Caribbean.  Coastal Caribbean has had no undistributed income
for the years 1987 through 2009.  If the QEF election is made in a
year other than the first year of the U.S. holder’s holding period in which the
foreign corporation is a PFIC, both the QEF regime and interest charge regime
can apply, unless a special election is made.  Under this special
election, the taxpayer is treated as if it disposed of its PFIC stock in a
transaction subject to the interest charge rules to the extent gain is deemed to
be recognized.  Once this election is made, the holder will be subject
only to the QEF regime.
 
 Recent Sales of Unregistered
Securities
 
 During
2009 the Company entered into agreements to sell and sold restricted shares of
its common stock for cash that allowed the Company to pay lease rentals and
other administrative costs necessary to keep the Company viable as a public
company.  The Company entered three of these agreements with several
individuals and entities for a total of $67,500 and issued a total of 1,191,333
restricted and unregistered shares of common stock of the Company.
 
 In
addition, in January of 2010, as part of an agreement with Robert J. Angerer,
Sr., and as consideration for entering the agreement, the Company issued to Mr.
Angerer 14,400,000 of restricted and unregistered shares of common stock of the
Company.
 
 Purchases of Equity
Securities by the Issuer and Affiliated Purchasers
 
 None
 
 Item
6.  Selected Consolidated
Financial Information
 
 The following selected consolidated
financial information (in thousands except for per share amounts) for the
Company insofar as it relates to each of the three years in the period ended
December 31, 2009 has been taken from the Company's consolidated financial
statements.
 
 Years
      ended December 31,2009
                    
                    
                    2008
                    
                    
                    2007Net
      loss
                    
                    $
                    (642
                    )
                    
                    $
                    (546
                    )
                    
                    $
                    (690
                    )Net
      loss per share  (basic and diluted)
                    
                    $
                    (.01
                    )
                    
                    $
                    (.01
                    )
                    
                    $
                    (.01
                    )Cash
      and cash equivalents and marketable securities
                    
                    $
                    9
                    
                    
                    $
                    1
                    
                    
                    $
                    30Unproved
      oil, gas and, mineral properties (full cost method)
                    
                    $
                    2,258
                    
                    
                    $
                    2,200
                    
                    
                    $
                    2,168Total
      assets
                    
                    $
                    2,356
                    
                    
                    $
                    2,292
                    
                    
                    $
                    2,373Shareholders'
      (deficit) equity:Common
      stock
                    
                    $
                    5,752
                    
                    
                    $
                    5,551
                    
                    
                    $
                    5,545Discount
      on Common Stock
                    
                    
                    (104
                    )
                    
                    
                    -
                    
                    
                    
                    -Capital
      in excess of par value
                    
                    
                    32,139
                    
                    
                    
                    32,139
                    
                    
                    
                    32,138Stock
      Subscription
                    
                    
                    10
                    
                    
                    
                    -
                    
                    
                    
                    -Deficit
      accumulated during the development stage
                    
                    
                    (36,856
                    )
                    
                    
                    (36,215
                    )
                    
                    
                    (35,670
                    )Total
      shareholders’ equity
                    
                    $
                    941
                    
                    
                    $
                    1,475
                    
                    
                    $
                    2,013Common
      stock shares outstanding (weighted average)
                    
                    
                    46,736
                    
                    
                    
                    46,250
                    
                    
                    
                    44,212
  11
 
 Item
      7.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
 
 Statements
included in Management's Discussion and Analysis of Financial Condition and
Results of Operations which are not historical in nature are intended to be
forward looking statements. The Company cautions readers that forward looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward looking
statements.
 
 General
 
 We are an
active independent oil and gas exploration company and through our subsidiary,
Coastal Petroleum, we hold mineral rights in Montana and North Dakota in the oil
producing region known as the Williston Basin.  Our objective
formations on those leases include the Lodgepole and the Eagle among
others.  The Company's future growth will be driven primarily by
exploration and development activities.  Our business strategy is to
increase shareholder value by acquiring and drilling reasonably priced prospects
that have good potential, whether in the Williston Basin or in other parts of
the United States, with the goal of shaping the Company into a producing
independent oil and gas firm. We will continue to seek high quality exploration
projects with potential for providing long-term drilling inventories that
generate high returns.
 
 In
Montana, we have obtained the rights to explore for oil and gas in one area
which will be our primary area of focus.  This primary area is a large
assembly of leases covering approximately 35,873 net acres in Valley County,
located in northeastern Montana close to known production from a Lodgepole
reef.  At the end of 2008, the Company held 114,832 net acres in
Valley County, but in March 2009, approximately 27,417 acres expired and in June
2009, approximately 51,542 acres expired.  Those expired leases were
not covering our Starbuck East propect.
 
 This area
of Montana has a number of other producing formations in addition to the
Lodgepole, including the Eagle sands.  Currently we have one agreement
with a party covering some of the areas of the leases.  We also hold
leases in southwestern North Dakota and have an agreement covering four
Lodgepole prospects on those leases.
 
 We are
actively engaged in pursuing funding for our Drilling Program.  The
Drilling Program is an aggressive $9,500,000 exploration operation which would
allow us to explore the potential of each of the areas we hold under
lease.  The Drilling Program covers exploration in three areas: a
development Red River Formation prospect in Slope County, North Dakota, on
approximately 400 acres we acquired; the drilling of three Lodgepole Formation
prospects we have on our North Dakota Leases; and twelve step out wells from the
Federal 1-19 well on the Starbuck East prospect in Montana.  The
Company is proceeding with the relatively inexpensive process of permitting
wells in its main block of leases in Valley County, Montana, in order to
accommodate the drilling of the expected wells.
 
 During
2009, we were primarily focused on and engaged in raising capital to fund the
Company so that we could recommence the exploration of our
leases.  Due to the recession and the fragile state of the country’s
financial market, capital was a scarce commodity to obtain.  While we
contacted, met with and negotiated with various individuals and groups during
the year, none were able to provide the capital necessary.  While we
were close to consummating an agreement with one entity and amended the articles
of our subsidiary to be prepared to complete the transaction, the other party
could not deliver the capital as promised.  The combination of the
broken deal and the state of the economy, left the Company with no other viable
alternative other than to sell shares of its common stock to raise capital
necessary to remain a viable public company and to retain its most valuable
leases.  We sold a total of 1,191,333 shares of common stock and
raised $67,500, while continuing to search for the capital needed to fund our
Drilling Plan.
 
 On
January 14, 2010, Robert J. Angerer, Sr., the chairman of the board of directors
and vice president of the Company at the time, entered into a letter agreement
for the funding of immediate cash needs and granting Mr. Angerer an option to
fund the Company’s and Coastal’s future obligations.  The agreement was
similar to the deal that was not consummated by a third party during
2009. Under the agreement Mr. Angerer provided compensation to the Company
including $300,000 cash and the forgiveness of $150,000 of legal fees owed
to his law firm, Angerer & Angerer, forgiveness of $21,500 in director fees
owed to him and credit of $240,000 to him for the completion of the Company’s
purchase of leases on which there is a Red River oil and gas development
prospect.  In return, Mr. Angerer was issued 14,400,000 Rule 144
restricted shares of the Company’s common stock and provided an option to
further fund the Company.
  12
  Mr.
Angerer may exercise up to four options by paying $3 million for each option
beginning three months after the date of the agreement and thereafter in three
month intervals.  In return for the funding, Mr. Angerer would earn up
to a total of 36% of the Company’s operations in North Dakota and Montana in
increments per exercised option and a 20% interest in Coastal
Petroleum.  There is also one extension available to extend the time
to exercise the first option for three months in exchange for the payment of
$50,000.
 
 Simultaneous
with this transaction, Mr. Angerer resigned as the Vice President of both the
Company and Coastal, but will remain as a Director and the Chairman of the Board
of Directors for both the Company and Coastal.  We continue to search
for capital while Mr. Angerer’s option remains unexercised, in order to secure
capital to fund our Drilling Program.  The Drilling Program is
separate from the agreements described below.
 
 In May
2008, we entered an agreement with Cobra.  Under the agreement, Cobra
paid Coastal $180,000 for the option to acquire a half interest in approximately
87,000 acres of Coastal’s Valley County Leases.  The agreement allowed
the Company to pay its Lease rentals that were due on June 1, 2008, and brought
in a new party to explore on the Leases. Cobra has until May 2010 to exercise
the option by spending $1,000,000 on behalf of the Company, drilling wells on
the leases covered by the agreement.  Those leases included
approximately 62,000 acres of leases that were formally under an agreement with
F-Cross Resources that expired in 2008 and more than 17,000 acres of other
leases Coastal held in Valley County.  No drilling has taken place yet
under this agreement.
 
 Two other agreements covering the
leases expired during 2008.  The first of the two agreements was a
farm-out agreement with Western Standard, entered in August
2007.  Under the agreement, Western Standard paid us $40,000 at
execution and then paid an additional $384,000.  From the $384,000,
$255,000 was paid to cover the costs of drilling the first well to test a
shallow natural gas prospect in Valley County, Montana and $129,000 was paid to
cover associated lease rentals.  Western Standard would have had an
interest in the first well drilled as well as an option to purchase a 50%
interest in the 42,000 acres under the lease.  Upon receiving the
funds to cover lease rentals, we repaid in full our loan of
$126,000.  Under the loan agreement, the individual that loaned us the
money continues to hold a 5% overriding royalty on the acreage held by Coastal
that was covered by the Western Standard farm-out agreement.
 
 The first
well under this agreement was drilled during October 2007, to test a shallow
natural gas prospect near the middle of the Company’s Valley County Leases. The
well, known as the Federal 1-19 Well, had three objectives: to confirm the
34,000 acre Starbuck East Prospect by finding that the Eagle formation was high
to surrounding wells off the Prospect; to confirm that there were good natural
gas shows in the Starbuck East Prospect; and to find commercial gas in either
the Eagle formation or the Judith River formation. The first two objectives were
met. Due to drilling damage, the third objective has not yet been
met.
 
 During October 2007, the Federal 1-19
well reached a total depth of 1,126 feet, and confirmed the structural high that
was targeted. The well also had gas shows in two zones. Casing was run into the
hole and operations to complete and test the well were undertaken in 2008, but
the Company was unable to determine by this well whether the target formations
contain economic quantities of gas.  Drilling damage in the well
prevented the testing of either of the prospective formations at this
location.  Completion efforts found that the Eagle formation was
damaged by the initial drilling and the formation was not able to be tested from
this well.  Further drilling into the Eagle formation during
completion did not yield gas like the gas show seen from the upper part of the
formation that was damaged.  The Judith River formation, a secondary
target, was damaged by drilling fluids lost into the formation while drilling
through it to get to the Eagle formation, the primary target.  Future
wells to test this structure will incorporate the information obtained from
these wells to prevent that damage from occurring again in other locations on
the structure.
  13
  It is not unusual that the first well
confirming a structure does not become a producing well.  The test
well did produce valuable information about the two gas bearing formations and
their potential for economically feasible commercial gas
production.  Problems encountered in drilling the test well can now be
avoided when future wells are drilled on the Starbuck East
Prospect.  With the first two objectives met, the Company will now
focus on achieving the third objective, specifically finding commercial gas in
either the Eagle or Judith River formations. We have received one permit to
drill a step-out well and are currently in the permitting process for two
more.
 
 After the completion efforts on the
Federal 1-19 well were finished, Western Standard had the option to purchase a
50% interest in approximately 42,000 acres near the well location for
$1,000,000.  The time to exercise that option passed and Western
Standard did not exercise it, so we regained complete control of the leases
formerly under the Western Standard agreement and Western Standard no longer has
an interest in them.
 
 The other agreement that expired in
2008 was with F-Cross and was entered in September of 2007, covering
approximately 64,000 acres on the northwest part of our Valley County
Leases.  Under the agreement, F-Cross had the option to drill a
Lodgepole test well within six months and after drilling that well had the
further option to acquire an interest in surrounding
acreage.   F-Cross was to pay for the cost of drilling the
initial well and was to receive a 100% working interest in the well until payout
and an 80% working interest subsequent to payout.   F-Cross
exercised its option and the first Lodgepole test well was spudded on November
3, 2007.  Drilling was finished, but the well is still awaiting
completion and testing of several zones which have potential for both oil and
gas.  F-Cross did not meet the requirements in the agreement and in
late March 2008 the option to acquire an interest in additional acreage expired,
leaving F-Cross with rights only in the section in which it drilled the
well.
 
 In 2006,
we participated in and acted as operator for the drilling of a well known as the
Evaline twin well, under a farm-in agreement on a location in Valley County,
south of our primary acreage.   It was drilled to total depth
into the Lodgepole reef that was targeted and encountered oil, but not in
sufficient quantities for us to earn an interest.  We then moved
uphole and perforated the Mission Canyon Formation which had a significant show
of oil while we were drilling to the Lodgepole.  We tested the Mission
Canyon and it too contained oil, but again not in sufficient quantities for us
to earn an interest in the well. Under the Agreement with farmor Helis, there
was a production threshold that had to be met to earn the interest and that
threshold could not be met. We have abandoned this well and will now focus on
our primary area.
 
 In North Dakota, we control the working
interest on approximately 8,510 net acres in Slope, Billings, and Stark
Counties, on which a number of drillable prospects have been mapped to
date.  The depth of wells in North Dakota is greater than in Montana
(approximately 9,500 feet versus approximately 5,000 feet), and thus the cost of
drilling is higher.  A typical North Dakota wildcat well costs about
$1.5 million to drill.  We had originally intended to bring in others
to share the risk and investment in wells it drills in North Dakota until the
Company is in a stronger financial position, but are now actively seeking
funding to allow us to begin such exploration on our own.
 
 Through our efforts to bring in others
to explore our North Dakota leases, in December of 2007 we entered a new
farm-out agreement with Western Standard.  Under the agreement, we
assigned leases over four of our high-graded Lodgepole Reef prospects to Western
Standard in return for $80,000 and we retained a back-in working interest of 20%
in the leases after payout.  The leases cover all rights below the
Tyler formation, including the Lodgepole formation, with an 80% net revenue
interest. We acquired these and other leases in the area in 2005 from Oil For
America for $50,000 and we have invested some additional funds to geochemically
test and high-grade these and other prospects on the leases.  Oil For
America has agreed to waive the drilling obligation on these four
prospects.  We will still retain additional Lodgepole reef prospects
on our North Dakota leases that are not covered by this farm-out
agreement.
 
 If our funding efforts are succesfull,
we plan to drill or participate in as many as sixteen exploratory wells under
our Drilling Plan.  However, the number of wells that we drill in 2010
and their cost will be subject to various factors, including whether or not we
can obtain sufficient funding to carry out the Drilling Program, whether Cobra
will exercise its option and begin exploration under its agreements, the
availability of drilling rigs that we can hire and whether we drill alone or
with other participants.  In addition, we could reduce the number of
wells that we drill if oil and natural gas prices were to decline
significantly.  We expect the cost of drilling the sixteen wells to
depend upon many factors, including those above, which may affect the cost of
operations and whether and to what extent others participate with the
Company.
  14
  Liquidity
and Capital Resources
 
 As more fully described in Note 1 to
the consolidated financial statements, we have no recurring revenues, have
experienced recurring losses and have a deficit accumulated during the
development stage.  We, along with various other related parties,
settled several lawsuits in 2005, which were filed by the Company, our
subsidiary Coastal Petroleum Company and other related parties against the State
of Florida.  All of these lawsuits were related to the State’s actions
limiting our ability to commence development activities through our
subsidiary.  The cost of that litigation was
substantial.  Management believes its current cash position, the
agreement with Cobra, and its active efforts to obtain funding will allow the
Company to move forward to explore and develop profitable oil and gas
operations, although there is no assurance these efforts will be
successful.  These situations raise substantial doubt about our
ability to continue as a going concern.  Our consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or amounts and classification
of liabilities, which may result from the outcome of these
uncertainties.
 
 At December 31, 2009, we have
approximately $10,000 in cash compared to approximately $1,000 at December 31,
2008.  Our current liabilities exceed our current assets by
approximately $1,406,000 at December 31, 2009. We suspended payments to our
directors, general legal counsel, and employee since the second quarter of 2007
through December 31, 2009, and have accrued $1,415,000 in expenses as of
December 31, 2009.  We expect to continue to suspend payments to
most of these parties for at least the first quarter of 2010 or until sufficient
funding can be secured to resume exploration operations and cover normal
operating expenses.
 
 During 2009, the Company sold 1,124,999
shares of common stock and raised $67,500.  The Company issued 483,667
in common shares for capital raising services and expensed $30,025 and incurred
$45,000 in capital raising expenses.
 
 Also during 2009, the Company received
a $10,000 stock subscription from its Board Chairman.  Subsequently in
January 2010, the Company completed the stock sale agreement for which the
Company received an additional $290,000 in cash and forgiveness of $182,850 due
to Mr. Angerer Sr. for services, the release of $240,000 in consideration owed
to him for the completion of the Company’s purchase of a Red River oil and gas
development prospect and other consideration, in exchange for 14,400,000 shares
of restricted common stock and a three month option to fund certain drilling
activities of the Company.
 
 During 2008, we received approximately
$218,000 under farm-out agreements for lease and drilling rights on our leases
and options to acquire additional rights and redeemed a $50,000 certificate of
deposit released from restrictions as a drilling bond.  Also during
2008, we used the funds received during the year primarily to pay our annual
lease payments and other operating expenses.  We may need to sell
additional lease rights to obtain the cash to make future lease rental payments,
although there is no guarantee we will be able to sell additional lease
rights.
 
 We expect to continue to participate
with others or to obtain sufficient funding to allow the Company to drill
additional wells both in Montana and North Dakota.
 
 Results
of Operations and Critical Accounting Policies and Estimates
 
 Development Stage Enterprise
Presentation
 
 The Company is a development stage
enterprise.  It has never had substantial revenues and has operated at
a loss each year (except 2005) since its inception in 1953.
  15
  Oil and Gas
Accounting
 
 The
Company follows the full cost method of accounting for its oil and gas
properties.  All costs associated with property acquisition,
exploration and development activities whether successful or unsuccessful are
capitalized.
 
 The capitalized costs are subject to a
ceiling test which basically limits such costs to the aggregate of the estimated
present value discounted at a 10% rate of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower of
cost or fair market value of unproved properties.  The Company
assesses whether its unproved properties are impaired on a periodic
basis.  This assessment is based upon work completed on the properties
to date, the expiration date of its leases and technical data from the
properties and adjacent areas.
 
 During 2009, we did not conduct
drilling activities as most of our efforts were focused on raising additional
capital to initiate our drilling program.  Substantially all of the
drilling activity on our leases during 2007 and 2008 was funded through farm-out
agreements with other entities, and we expect that to continue, although there
is no guarantee we will enter additional farm-out agreements.
 
 During 2008, we did not conduct
drilling activities due to weather and/or landowner access restrictions on our
leases from January 1st to July 1st. We performed some completion work in two
stages during the 3rd quarter and finished the remainder of the operations,
including completion work, stimulation and testing of the well, during the
4th quarter of 2008
 
 2009 vs.
2008
 
 During 2009, we did not conduct any
drilling operations.  During 2008, we conducted completion efforts on
one of the wells we drilled in 2007.  Our net loss for 2009 was
$(642,000) compared to a net loss of $(546,000) for 2008.
 
 For 2009 and 2008, we focused on
seeking other entities to drill wells on our leases and in drilling
wells.  Our expenses did not change significantly in 2009 from 2008,
except we incurred capital raising expenses of approximately $85,000 in
2009.  Our expenses consist of administrative corporate and regulatory
costs, and the administrative, travel, and lodging costs to maintain our leases
in North Dakota and Montana.
 
 Item
      7A.
              Quantitative and
      Qualitative Disclosure About Market
Risk
 
 Not applicable.
  16
  Item
8.  Financial Statements and
Supplementary Data
 
 Report
of Independent Registered Public Accounting Firm
 
 To the
Board of Directors
 Coastal
Caribbean Oils & Minerals, Ltd.
 Apalachicola,
Florida
 
 We have
audited the consolidated balance sheets of Coastal Caribbean Oils &
Minerals, Ltd. and subsidiary (the “Company”) as of December 31, 2009 and 2008,
and the related consolidated statements of operations, cash flows and common
stock and capital in excess of par value, for the years then ended, and for the
period from January 31, 1953 (inception) to December 31, 2009.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coastal
Caribbean Oils & Minerals, Ltd. and subsidiary as of December 31, 2009 and
2008, and the results of their operations and cash flows for the years then
ended, and for the period from January 31, 1953 (inception) to December 31,
2009, in conformity with accounting principles generally accepted in the United
States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  As discussed in Note 1 to
the consolidated financial statements, the Company suffered recurring losses
from operations and has not yet realized any revenues from development
activities.  This raises substantial doubt about the Company’s ability
to continue as a going concern.  The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
 
 We were
not engaged to examine management’s assertion about the effectiveness of Coastal
Caribbean Oils & Minerals, Ltd’s internal control over financial reporting
as of December 31, 2009  included in the accompanying Management’s annual report on
internal control over financial reporting and, accordingly, we do not
express an opinion thereon.
 
 Baumann,
Raymondo & Company PA
 Tampa,
Florida
 April 8,
2010
  17


COASTAL
CARIBBEAN OILS & MINERALS, LTD.


(A
Bermuda Corporation)


A
Development Stage Company





CONSOLIDATED
BALANCE SHEETS


(Expressed
in U.S. dollars)





December 31,2009
              
              
              2008AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              9,207
              
              
              $
              752Total
      current assets
              
              
              9,207
              
              
              
              752Certificates
      of deposit
              
              
              85,255
              
              
              
              84,765Petroleum
      leases
              
              
              2,257,741
              
              
              
              2,200,475Equipment,
      net
              
              
              3,895
              
              
              
              6,415Total
      assets
              
              $
              2,356,098
              
              
              $
              2,292,407Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued liabilities
              
              $
              242,693
              
              
              $
              58,885Notes
      payable
              
              
              73,198
              
              
              
              -Amounts
      due to related parties
              
              
              1,098,949
              
              
              
              758,021Total
      current liabilities
              
              
              1,414,840
              
              
              
              816,906Shareholders'
      equity:Common
      stock, par value $.12 per share:Authorized
      – 250,000,000 shares Outstanding – 47,936,604 and 46,261,604
      shares, respectively
              
              
              5,752,392
              
              
              
              5,551,392Discount
      on common stock
              
              
              (103,475
              )
              
              
              -Capital
      in excess of par value
              
              
              32,139,311
              
              
              
              32,139,311Stock
      subscription
              
              
              10,000
              
              
              
              -37,798,228
              
              
              
              37,690,703Deficit
      accumulated during the development stage
              
              
              (36,856,970
              )
              
              
              (36,215,202
              )Total
      shareholders’ equity
              
              
              941,258
              
              
              
              1,475,501Total
      liabilities and shareholders’ equity
              
              $
              2,356,098
              
              
              $
              2,292,407


See
accompanying notes.


18


COASTAL
CARIBBEAN OILS & MINERALS, LTD.


(A
Bermuda Corporation)


A
Development Stage Company





CONSOLIDATED
STATEMENTS OF OPERATIONS


(Expressed
in U.S. Dollars)





Years Ended December 31,
                                                                  
                                                                  
                                                                  For the period
                                                                    from Jan. 31,
                                                                    1953
                                                                    (inception) to
                                                                    Dec. 31, 20092009
                                                                  
                                                                  
                                                                  2008Gain
      on settlement
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  8,124,016Interest
      and other income
                                                                  
                                                                  
                                                                  490
                                                                  
                                                                  
                                                                  
                                                                  4,057
                                                                  
                                                                  
                                                                  
                                                                  3,984,461490
                                                                  
                                                                  
                                                                  
                                                                  4,057
                                                                  
                                                                  
                                                                  
                                                                  12,108,477Expenses:Legal
      fees and costs
                                                                  
                                                                  
                                                                  82,869
                                                                  
                                                                  
                                                                  
                                                                  152,793
                                                                  
                                                                  
                                                                  
                                                                  17,654,557Administrative
      expenses
                                                                  
                                                                  
                                                                  214,646
                                                                  
                                                                  
                                                                  
                                                                  262,500
                                                                  
                                                                  
                                                                  
                                                                  11,059,367Salaries
                                                                  
                                                                  
                                                                  125,000
                                                                  
                                                                  
                                                                  
                                                                  125,000
                                                                  
                                                                  
                                                                  
                                                                  4,396,431Shareholder
      communications
                                                                  
                                                                  
                                                                  24,595
                                                                  
                                                                  
                                                                  
                                                                  9,326
                                                                  
                                                                  
                                                                  
                                                                  4,149,616Goodwill
      impairment
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  801,823Write
      off of unproved properties
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  6,690,752Exploration
      costs
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  188,218Lawsuit
      judgments
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  1,941,916Minority
      interests
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (632,974
                                                                  )Other
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  364,865Contractual
      services
                                                                  
                                                                  
                                                                  195,148
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  2,350,876642,258
                                                                  
                                                                  
                                                                  
                                                                  549,619
                                                                  
                                                                  
                                                                  
                                                                  48,965,447Net loss before
      income Taxes
                                                                  
                                                                  
                                                                  (641,768
                                                                  )
                                                                  
                                                                  
                                                                  (545,562
                                                                  )
                                                                  
                                                                  
                                                                  (36,856,970
                                                                  )Income
      tax benefit
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Net
      loss
                                                                  
                                                                  $
                                                                  (641,768
                                                                  )
                                                                  
                                                                  $
                                                                  (545,562
                                                                  )Deficit
      accumulated during the development stage
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  $
                                                                  (36,856,970
                                                                  )Net
      loss per share based on weighted average number of shares outstanding
      during the period:Basic
      and diluted EPS
                                                                  
                                                                  $
                                                                  (.01
                                                                  )
                                                                  
                                                                  $
                                                                  (.01
                                                                  )Weighted
      average number of shares outstanding (basic and diluted)
                                                                  
                                                                  
                                                                  46,737,289
                                                                  
                                                                  
                                                                  
                                                                  46,249,960





See
accompanying notes.


19


COASTAL
CARIBBEAN OILS & MINERALS, LTD.


(A
Bermuda Corporation)


A
Development Stage Company





CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Expressed
in U.S. Dollars)





Years Ended December 31,
              
              
              For the period
                from Jan. 31,
                1953 (inception)
                to2009
              
              
              2008
              
              
              Dec.
      31, 2009Operating
      activities:Net
      loss
              
              $
              (641,768
              )
              
              $
              (545,562
              )
              
              $
              (36,856,970
              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Gain
      on settlement
              
              
              -
              
              
              
              -
              
              
              
              (8,124,016
              )Goodwill
      impairment
              
              
              -
              
              
              
              -
              
              
              
              801,823Minority
      interest
              
              
              -
              
              
              
              -
              
              
              
              (602,949
              )Depreciation
              
              
              2,520
              
              
              
              2,520
              
              
              
              9,078Write
      off of unproved properties
              
              
              -
              
              
              
              -
              
              
              
              6,690,752Common
      stock issued for services
              
              
              30,025
              
              
              
              -
              
              
              
              119,500Compensation
      recognized for stock option grant
              
              
              -
              
              
              
              -
              
              
              
              75,000Recoveries
      from previously written off properties
              
              
              -
              
              
              
              -
              
              
              
              252,173Net
      change in:Prepaid
      expenses and other
              
              
              -
              
              
              
              30,041
              
              
              
              -Accounts
      payable and accrued liabilities
              
              
              524,736
              
              
              
              457,572
              
              
              
              1,284,377Income
      taxes payable
              
              
              -
              
              
              
              -
              
              
              
              -Net
      cash used in operating activities
              
              
              (84,487
              )
              
              
              (55,429
              )
              
              
              (36,351,232
              )Investing
      activities:Additions
      to oil, gas, and mineral properties net of assets acquired for common
      stock and reimbursements
              
              
              (57,266
              )
              
              
              (250,163
              )
              
              
              (6,453,252
              )Well
      drilling costs
              
              
              -
              
              
              
              -
              
              
              
              (1,071,011
              )Sale
      of unproved nonoperating interests
              
              
              -
              
              
              
              217,981
              
              
              
              512,595Net proceeds from settlement
              
              
              -
              
              
              
              -
              
              
              
              8,124,016Proceeds
      from relinquishment of surface rights
              
              
              -
              
              
              
              -
              
              
              
              246,733Purchase
      of certificates of deposit
              
              
              (490
              )
              
              
              (4,056
              )
              
              
              (139,910
              )Redemption
      of certificate of deposit
              
              
              -
              
              
              
              54,655
              
              
              
              54,655Purchase
      of Minority interest in subsidiary
              
              
              -
              
              
              
              -
              
              
              
              (801,823
              )Purchase
      of equipment
              
              
              -
              
              
              
              -
              
              
              
              (74,623
              )Net
      cash provided by (used in) investing activities
              
              
              (57,756
              )
              
              
              18,417
              
              
              
              397,380Financing
      activities:Notes
      payable proceeds
              
              
              73,198
              
              
              
              -
              
              
              
              184,988Repayment
      of loans
              
              
              -
              
              
              
              -
              
              
              
              (111,790
              )Sale
      of common stock, net of expenses
              
              
              67,500
              
              
              
              -
              
              
              
              30,448,112Stock
      subscription received
              
              
              10,000
              
              
              
              -
              
              
              
              10,000Shares
      issued upon exercise of options
              
              
              -
              
              
              
              7,500
              
              
              
              891,749Sale
      of shares by subsidiary
              
              
              -
              
              
              
              -
              
              
              
              820,000Sale
      of subsidiary shares
              
              
              -
              
              
              
              -
              
              
              
              3,720,000Net
      cash provided by financing activities
              
              
              150,698
              
              
              
              7,500
              
              
              
              35,963,059Net
      (decrease) increase in cash and
cash  equivalents
              
              
              8,455
              
              
              
              (29,512
              )
              
              
              9,207Cash
      and cash equivalents at beginning of period
              
              
              752
              
              
              
              30,264
              
              
              
              -Cash
      and cash equivalents at end of period
              
              $
              9,207
              
              
              $
              752
              
              
              $
              9,207


See
accompanying notes.


20


COASTAL
CARIBBEAN OILS & MINERALS, LTD.


(A
Bermuda Corporation)


A
Development Stage Company





CONSOLIDATED
STATEMENT OF COMMON STOCK


AND
CAPITAL IN EXCESS OF PAR VALUE


(Expressed
in U.S. dollars)


For the
period from January 31, 1953 (inception) to December 31, 2009




Capital inDiscount on
                                
                                
                                ExcessNumber of
                                
                                
                                Common
                                
                                
                                Common
                                
                                
                                of ParShares
                                
                                
                                Stock
                                
                                
                                Stock
                                
                                
                                ValueShares
      issued for net assets and unrecovered costsat
      inception
                                
                                
                                5,790,210
                                
                                
                                $
                                579,021
                                
                                
                                $
                                -
                                
                                
                                $
                                1,542,868Sales
      of common stock
                                
                                
                                26,829,486
                                
                                
                                
                                3,224,014
                                
                                
                                
                                -
                                
                                
                                
                                16,818,844Shares
      issued upon exercise of stock options
                                
                                
                                510,000
                                
                                
                                
                                59,739
                                
                                
                                
                                -
                                
                                
                                
                                799,760Market
      value ($2.375 per share) of shares issued in1953
      to acquire an investment
                                
                                
                                54,538
                                
                                
                                
                                5,454
                                
                                
                                
                                -
                                
                                
                                
                                124,074Shares issued in
      1953 in exchange for 1/3rd
      of a 1/60thoverriding
      royalty (sold in prior year) in nonproducingleases
      of Coastal Petroleum
                                
                                
                                84,210
                                
                                
                                
                                8,421
                                
                                
                                
                                -
                                
                                
                                
                                -Market
      value of shares issued for services renderedduring
      the period 1954-1966
                                
                                
                                95,188
                                
                                
                                
                                9,673
                                
                                
                                
                                -
                                
                                
                                
                                109,827Net
      transfers to restate the par value of common stockOutstanding
      in 1962 and 1970 to $0.12 per share
                                
                                
                                -
                                
                                
                                
                                117,314
                                
                                
                                
                                -
                                
                                
                                
                                (117,314
                                )Increase
      in Company's investment (equity) due tocapital
      transactions of Coastal Petroleum in 1976
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                117,025Balance
      at December 31, 1990
                                
                                
                                33,363,632
                                
                                
                                
                                4,003,636
                                
                                
                                
                                -
                                
                                
                                
                                19,395,084Sale
      of subsidiary shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                300,000Balance
      at December 31, 1991
                                
                                
                                33,363,632
                                
                                
                                
                                4,003,636
                                
                                
                                
                                -
                                
                                
                                
                                19,695,084Sale
      of subsidiary shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                390,000Balance
      at December 31, 1992
                                
                                
                                33,363,632
                                
                                
                                
                                4,003,636
                                
                                
                                
                                -
                                
                                
                                
                                20,085,084Sale
      of subsidiary shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,080,000Balance
      at December 31, 1993
                                
                                
                                33,363,632
                                
                                
                                
                                4,003,636
                                
                                
                                
                                -
                                
                                
                                
                                21,165,084Sale
      of subsidiary shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                630,000Balance
      at December 31, 1994
                                
                                
                                33,363,632
                                
                                
                                
                                4,003,636
                                
                                
                                
                                -
                                
                                
                                
                                21,795,084Sale
      of subsidiary shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                600,000Balance
      at December 31, 1995
                                
                                
                                33,363,632
                                
                                
                                
                                4,003,636
                                
                                
                                
                                -
                                
                                
                                
                                22,395,084Sale
      of common stock
                                
                                
                                6,672,726
                                
                                
                                
                                800,727
                                
                                
                                
                                -
                                
                                
                                
                                5,555,599Sale
      of subsidiary shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                480,000Exercise
      of stock options
                                
                                
                                10,000
                                
                                
                                
                                1,200
                                
                                
                                
                                -
                                
                                
                                
                                12,300Balance
      at December 31, 1996
                                
                                
                                40,046,358
                                
                                
                                
                                4,805,563
                                
                                
                                
                                -
                                
                                
                                
                                28,442,983Sale
      of subsidiary shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                240,000Exercise
      of stock options
                                
                                
                                10,000
                                
                                
                                
                                1,200
                                
                                
                                
                                -
                                
                                
                                
                                10,050Balance
      at December 31, 1997,1998 and 1999
                                
                                
                                40,056,358
                                
                                
                                
                                4,806,763
                                
                                
                                
                                -
                                
                                
                                
                                28,693,033Sale
      of common stock
                                
                                
                                3,411,971
                                
                                
                                
                                409,436
                                
                                
                                
                                -
                                
                                
                                
                                2,729,329Compensation
      recognized for stock option grant
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                75,000Balance
      at December 31, 2000 and 2001
                                
                                
                                43,468,329
                                
                                
                                
                                5,216,199
                                
                                
                                
                                -
                                
                                
                                
                                31,497,362Sale
      of common stock
                                
                                
                                2,743,275
                                
                                
                                
                                329,193
                                
                                
                                
                                -
                                
                                
                                
                                570,449Balance
      as of December 31, 2002
                                
                                
                                46,211,604
                                
                                
                                
                                5,545,392
                                
                                
                                
                                -
                                
                                
                                
                                32,067,811Sale
      of subsidiary shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                70,000Balance
      as of December 31, 2003 through 2007
                                
                                
                                46,211,604
                                
                                
                                
                                5,545,392
                                
                                
                                
                                
                                
                                
                                
                                32,137,811Exercise
      of stock options
                                
                                
                                50,000
                                
                                
                                
                                6,000
                                
                                
                                
                                -
                                
                                
                                
                                1,500Balance
      as of December 31, 2008
                                
                                
                                46,261,604
                                
                                
                                
                                5,551,392
                                
                                
                                
                                -
                                
                                
                                
                                32,139,311Sale
      of common stock
                                
                                
                                1,191,333
                                
                                
                                
                                142,960
                                
                                
                                
                                (75,460
                                )
                                
                                
                                -Shares
      issued for services
                                
                                
                                483,667
                                
                                
                                
                                58,040
                                
                                
                                
                                (28,015
                                )
                                
                                
                                -Balance
      as of December 31, 2009
                                
                                
                                47,936,604
                                
                                
                                $
                                5,752,392
                                
                                
                                $
                                (103,475
                                )
                                
                                $
                                32,139,311





See
accompanying notes.


21


1.
              Summary of significant accounting policies





Consolidation





The
accompanying consolidated financial statements include the accounts of Coastal
Caribbean Oils & Minerals, Ltd., a Bermuda corporation (“Coastal Caribbean”)
and its wholly owned subsidiary, Coastal Petroleum Company (“Coastal
Petroleum”), referred to collectively as the Company.  The Company,
which has been engaged in a single industry and segment, is considered to be a
development stage company since its exploration for oil, gas and minerals has
not yielded any significant revenue or reserves.  All intercompany
transactions have been eliminated.  Certain prior year amounts have
been reclassified to conform with the current year presentation.





Cash and Cash
Equivalents





The
Company considers all highly liquid short-term investments with maturities of
three months or less at the date of acquisition to be cash
equivalents.





Equipment





Equipment
is recorded at cost. Depreciation is provided using straight-line over five
years, the estimated useful lives of the assets.





Use of
Estimates





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.  The ability to develop the
Company’s oil and gas properties will have a significant effect on the Company’s
financial position and results of operations. Actual results could differ from
those estimates.





Unproved Oil, Gas and
Mineral Properties





The
Company follows the full cost method of accounting for its oil and gas
properties.  All costs associated with property acquisition,
exploration and development activities whether successful or unsuccessful are
capitalized.




Once the
Company has proved reserves the capitalized costs will be subject to a ceiling
test which basically limits such costs to the aggregate of the estimated present
value discounted at a 10% rate of future net revenues from proved reserves,
based on current economic and operating conditions.  Currently the
capitalized costs are carried at the lower of cost or fair market value of
unproved properties.





The
Company assesses whether its unproved properties are impaired on a periodic
basis.  This assessment is based upon work completed on the properties
to date, the expiration date of its leases and technical data from the
properties and adjacent areas.  As of December 31, 2009, no impairment
existed.  Sales of unproved nonoperating interests in oil and gas
leases are accounted for as a reduction in the capitalized amount of the
leases.





Sale of Subsidiary
Shares





All
amounts realized from the sale of Coastal Petroleum shares have been credited to
capital in excess of par value.





Net Income (Loss) Per
Share





Net
income (loss) per common share is based upon the weighted average number of
common and common equivalent shares outstanding during the
period.  The Company’s basic and diluted calculations of EPS are the
same because the exercise of options is not assumed in calculating diluted EPS,
as the result would be anti-dilutive.


22





1.
            Summary of significant accounting policies
      (Cont'd)





Financial
instruments





The
carrying value for cash and cash equivalents, certificates of deposit, and
accounts payable approximates fair value based on anticipated cash flows and
current market conditions.





Stock Based
Compensation





The
Company uses the fair value based method of accounting for its stock option
plans, which requires companies to expense stock options and other share-based
payments.





New Accounting
Pronouncements





The
Financial Accounting Standards Board (“FASB”) has issued several new standards
which have implementation dates subsequent to the Company’s year
end.  Management does not believe that any of these new standards will
have a material impact on the Company’s financial position, results of
operations or cash flows.





Going
Concern





The
Company has no recurring revenues, had recurring losses since 2006 and prior to
2005, and has a deficit accumulated during the development stage.  The
Company's current cash position is not adequate to fund existing operations or
exploration and development of its oil and gas properties.  Curently,
management is actively pursuing funding to allow the Company to undertake
exploration efforts on its own.  The Company has an agreement in place
with a director which provides the director with options to further fund the
Company to continue operations and exploration of its leases.  The
Company continues to be in contact with several parties interested in investing
in the Company so that the Company could explore its leases on its
own.  In addition, the Company has been in contact with other parties
interested in working with the Company, in buying some of the Company’s leases
or in buying an interest in those leases.  There is no assurance that
the Company will be able to obtain any funding, that the director will exercise
the options under the current agreement, that sufficient funding can be
obtained, or that the Company will be able to raise necessary funds through the
sale of some of its leases or interests in those leases.





These
situations raise substantial doubt about the Company’s ability to continue as a
going concern.  The consolidated financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classification of liabilities, which may
result from the outcome of this uncertainty.





2.
            Unproved Oil, Gas
      and Mineral Properties





Farm-out Agreements and
Drilling Activity





In May
2008, we entered an agreement with Cobra.  Under the agreement, Cobra
paid Coastal $180,000 for the option to acquire a half interest in approximately
87,000 acres of Coastal’s Valley County Leases.  The agreement allowed
the Company to pay its Lease rentals that were due on June 1, 2008, and brought
in a new party to explore on the Leases. Cobra has until May 2010 to exercise
the option by spending $1,000,000 on behalf of the Company, drilling wells on
the leases covered by the agreement.  Those leases included
approximately 62,000 acres of leases that were formally under an agreement with
F-Cross Resources that expired in 2008 and more than 17,000 acres of other
leases Coastal held in Valley County.  No drilling has taken place yet
under this agreement.





In August
2007, the Company entered into a farm-out agreement with Western Standard Energy
Corp. (“Western Standard”).  Under the agreement Western Standard paid
$40,000 up front to Coastal and then paid an additional $255,000 to cover the
costs of drilling the first well to test a shallow natural gas prospect in
Valley County, Montana and $129,000 to cover associated lease rentals. The
Company did not record the receipt of the $255,000 or the cost of the associated
well and recorded the remaining $169,000 as a reduction in capitalized petroleum
lease costs.  The Agreement expired in 2008 when Western Standard did
not exercise its option under the Agreement.


23





2.
            Unproved Oil, Gas
      and MineralProperties
      (Cont'd)





The first
well under this agreement was drilled during October 2007, to test a shallow
natural gas prospect near the middle of the Company’s Valley County
Leases.  The well reached a total depth of 1,126 feet, and confirmed
the structural high that the Company believed to be there.  The well
also had gas shows in two zones.  Casing was run into the hole and
operations to complete and test the well were delayed but took place in
2008.  The Company also received an additional $29,000 from Western
Standard to cover additional drilling and other costs associated with the delay
in well completion, which has been recorded as a reduction in capitalized
petroleum lease costs.  Western Standard also paid the estimated well
completion costs of $65,000 before operations began in 2008.  The
completion efforts revealed that the well had been damaged and could not be
tested.  Once completion efforts were finished on the well, Western
Standard had 30 days to exercise its option to purchase a 50% interest in the
leases, but did not so exercise.





In
September 2007, the Company received $50,000 from F-Cross when the two parties
entered into a farm-out agreement covering approximately 64,000 acres on the
northwest part of the Company’s Valley County Leases. Under the agreement,
F-Cross had the option to drill a Lodgepole test well within six months and
after drilling that well had the further option to acquire an interest in
surrounding acreage. F-Cross was to pay for the cost of drilling the initial
well and receive a 100% working interest in the well until payout and an 80%
working interest subsequent to payout with the Company retaining the other 20%.
The first Lodgepole test well was spudded on November 3, 2007 and drilling was
finished, but the well is still awaiting completion and testing of several zones
which have potential for both oil and gas.  However, F-Cross did not
meet the requirements in the agreement and in late March the option to acquire
an interest in additional acreage expired, leaving F-Cross with rights only in
the section in which it drilled the well.





Montana
Leases





The
Company’s primary presence in Montana is in Valley County, where it holds leases
covering approximately 114,832 net acres (87,415 net acres after approximately
27,417 net acres expired in March 2009), which are the remaining unexpired
leases from those leases the Company acquired in three separate acquisitions
between July 2005 and February 2006. The leases acquired in those acquisitions
are contiguous to each other and are referred to collectively as “the Valley
County Leases.”





The first
acquisition of the Valley County Leases was in July 2005, when the Company
acquired the rights to drill two 6,500 foot wells to test Mississippian
Lodgepole reefs in Valley County, in northeast Montana for a one time fee of
$50,000 from an entity controlled by one of the Company’s Directors. That
acquisition included a small amount of acreage and the option to drill fifty
additional prospects in the Valley County area.





The
second acquisition of the Valley County Leases was in November 2005, when the
Company acquired a group of oil and gas lease rights to approximately 109,423
net acres in eastern Montana for $1,568,000 from EOG Resources, Inc. and Great
Northern Gas Company. These leases are subject to various overriding royalty
interests to others ranging up to 19.5%. These leases expire in years from 2007
to 2014.





The final
acquisition of acreage within the Valley County Leases was in February 2006,
when the Company acquired additional oil and gas leases in eastern Montana
covering 27,740 net acres contiguous to its existing Montana leases. These
leases were acquired from the Bureau of Land Management and United States
Department of the Interior.





The
Company borrowed $126,000 in May 2007 to pay its lease obligations that were due
in June 2007. The note required the loan to be repaid prior to the Company
spudding the first well on any of the approximately 42,000 acres its leases
covered by the loan agreement. Coastal assigned a 5% overriding royalty interest
(before all expenses) in 8/8ths of the oil or natural gas produced from those
Valley County Montana leases to the lender. The loan was repaid on October 15,
2007, prior to the spudding of the first well on the acreage, out of the money
advanced by Western Standard to cover lease rentals under their agreement with
the Company.


24





2.
            Unproved Oil, Gas
      and MineralProperties
      (Cont'd)





North Dakota
Leases





In July
2005, the Company acquired leases to the deeper rights in approximately 21,688
net acres in and near Slope County, North Dakota for a one time fee of $50,000
from an entity controlled by one of the Company’s Directors and the Company has
invested some additional funds to geochemically test and high-grade these and
other prospects on the leases. Since that time, some of the leases have expired
and the Company currently holds leases on approximately 8,748 gross and 8,510
net acres in North Dakota. The Company is obligated to drill a test well on the
original leases totaling 7,031.08 acres before June 1, 2010, and has the option
to drill the remaining Lodgepole Reef prospects on these leases. The Company had
intended to team with other entities to share the cost of the initial 9,700 foot
test well, the total estimated drilling cost of which is estimated to be
$1,500,000, however, it is unlikely that the Company will be able to identify
and contract with a team prospect prior to the expiration date. The leases
making up the remaining acreage were leased by the Company and have no
obligation associated with them. The Company is actively seeking funding
sufficient to allow it to explore its leases on its own.





In an
effort to explore the North Dakota leases, in December of 2008, the Company
entered a new farm-out agreement with Western Standard.  Under the
agreement, the Company assigned leases over four of its high-graded Lodgepole
Reef prospects to Western Standard in return for $80,000, which was recorded as
a reduction in capitalized petroleum lease costs.  The Company will
also retain a back-in working interest of 20% in the leases after
payout.  Oil For America has agreed to waive the drilling obligation
on these four prospects.  The Company still retains additional
Lodgepole reef prospects on its North Dakota leases that are not covered by this
farm-out agreement.





(Intentionally
left blank.)


25


3.
            Common Stock





The
Company's Bye-Law No. 21 provides that any matter to be voted upon must be
approved not only by a majority of the shares voted at such meeting, but also by
a majority in number of the shareholders present in person or by proxy and
entitled to vote thereon.





The
following represents shares issued upon sales of common stock:





Number
                    
                    
                    Common
                    
                    
                    Capital in ExcessYear
                    
                    of Shares
                    
                    
                    Stock
                    
                    
                    of Par Value1953
                    
                    
                    300,000
                    
                    
                    $
                    30,000
                    
                    
                    $
                    654,0001954
                    
                    
                    53,000
                    
                    
                    
                    5,300
                    
                    
                    
                    114,2651955
                    
                    
                    67,000
                    
                    
                    
                    6,700
                    
                    
                    
                    137,9371956
                    
                    
                    77,100
                    
                    
                    
                    7,710
                    
                    
                    
                    139,5481957
                    
                    
                    95,400
                    
                    
                    
                    9,540
                    
                    
                    
                    152,4921958
                    
                    
                    180,884
                    
                    
                    
                    18,088
                    
                    
                    
                    207,1351959
                    
                    
                    123,011
                    
                    
                    
                    12,301
                    
                    
                    
                    160,7511960
                    
                    
                    134,300
                    
                    
                    
                    13,430
                    
                    
                    
                    131,4311961
                    
                    
                    127,500
                    
                    
                    
                    12,750
                    
                    
                    
                    94,0771962
                    
                    
                    9,900
                    
                    
                    
                    990
                    
                    
                    
                    8,0361963
                    
                    
                    168,200
                    
                    
                    
                    23,548
                    
                    
                    
                    12,0411964
                    
                    
                    331,800
                    
                    
                    
                    46,452
                    
                    
                    
                    45,0441965
                    
                    
                    435,200
                    
                    
                    
                    60,928
                    
                    
                    
                    442,3911966
                    
                    
                    187,000
                    
                    
                    
                    26,180
                    
                    
                    
                    194,1871967
                    
                    
                    193,954
                    
                    
                    
                    27,153
                    
                    
                    
                    249,6081968
                    
                    
                    67,500
                    
                    
                    
                    9,450
                    
                    
                    
                    127,4681969
                    
                    
                    8,200
                    
                    
                    
                    1,148
                    
                    
                    
                    13,5321970
                    
                    
                    274,600
                    
                    
                    
                    32,952
                    
                    
                    
                    117,1541971
                    
                    
                    299,000
                    
                    
                    
                    35,880
                    
                    
                    
                    99,2021972
                    
                    
                    462,600
                    
                    
                    
                    55,512
                    
                    
                    
                    126,1851973
                    
                    
                    619,800
                    
                    
                    
                    74,376
                    
                    
                    
                    251,2021974
                    
                    
                    398,300
                    
                    
                    
                    47,796
                    
                    
                    
                    60,0071975
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (52,618
                    )1976
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (8,200
                    )1977
                    
                    
                    850,000
                    
                    
                    
                    102,000
                    
                    
                    
                    1,682,7061978
                    
                    
                    90,797
                    
                    
                    
                    10,896
                    
                    
                    
                    158,3431979
                    
                    
                    1,065,943
                    
                    
                    
                    127,914
                    
                    
                    
                    4,124,0631980
                    
                    
                    179,831
                    
                    
                    
                    21,580
                    
                    
                    
                    826,7631981
                    
                    
                    30,600
                    
                    
                    
                    3,672
                    
                    
                    
                    159,3601983
                    
                    
                    5,318,862
                    
                    
                    
                    638,263
                    
                    
                    
                    1,814,6421985
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (36,220
                    )1986
                    
                    
                    6,228,143
                    
                    
                    
                    747,378
                    
                    
                    
                    2,178,4711987
                    
                    
                    4,152,095
                    
                    
                    
                    498,251
                    
                    
                    
                    2,407,5221990
                    
                    
                    4,298,966
                    
                    
                    
                    515,876
                    
                    
                    
                    26,3191996
                    
                    
                    6,672,726
                    
                    
                    
                    800,727
                    
                    
                    
                    5,555,5992000
                    
                    
                    3,411,971
                    
                    
                    
                    409,436
                    
                    
                    
                    2,729,3292002
                    
                    
                    2,743,275
                    
                    
                    
                    329,193
                    
                    
                    
                    570,4492009
                    
                    
                    1,191,333
                    
                    
                    
                    142,960
                    
                    
                    
                    -40,848,791
                    
                    
                    $
                    4,906,330
                    
                    
                    $
                    25,674,221





The following represents shares issued
upon exercise of stock options:





Number
                    
                    
                    Common
                    
                    
                    Capital in ExcessYear
                    
                    of Shares
                    
                    
                    Stock
                    
                    
                    of Par Value1955
                    
                    
                    73,000
                    
                    
                    $
                    7,300
                    
                    
                    $
                    175,2001978
                    
                    
                    7,000
                    
                    
                    
                    840
                    
                    
                    
                    6,1601979
                    
                    
                    213,570
                    
                    
                    
                    25,628
                    
                    
                    
                    265,6191980
                    
                    
                    76,830
                    
                    
                    
                    9,219
                    
                    
                    
                    125,2331981
                    
                    
                    139,600
                    
                    
                    
                    16,752
                    
                    
                    
                    227,5481996
                    
                    
                    10,000
                    
                    
                    
                    1,200
                    
                    
                    
                    12,3001997
                    
                    
                    10,000
                    
                    
                    
                    1,200
                    
                    
                    
                    10,0502008
                    
                    
                    50,000
                    
                    
                    
                    6,000
                    
                    
                    
                    1,500580,000
                    
                    
                    $
                    68,139
                    
                    
                    $
                    823,610


26





3.
            Common Stock
      (Cont’d)





During
2009, the Company accrued a $45,000 fee and issued 250,000 shares of common
stock to its President in connection with a loan provided by the President for
the Company to use for capital raising expenses.  The Company expensed
$12,500 as the fair value of these shares.  Also during 2009, the
Company issued 233,667 shares of Common stock to a consultant for capital
raising services.  The Company expensed $17,525 as the fair value of
these shares.





4.
            Stock Option
      Plans





At
December 31, 2009, the Company maintains two stock-based employee compensation
plans.




During
1995, the Company adopted a Stock Option Plan covering 1,000,000 shares of the
Company’s common stock. In July 2005, the Company issued an option to its
president to acquire 50,000 shares of the Company’s common stock at a price of
$.15 per share under the Company’s stock option plan. The option expires in ten
years and was fully vested when issued. The Company determined the fair value of
the stock did not exceed the exercise price on the date of issue and no expense
was recorded in 2005.





Unexercised
options that existed prior to the 2005 Agreement with the State of Florida were
terminated by the Agreement or the releases exchanged during the process of
closing that Agreement.





In
December 2005, the Company issued options to its directors to acquire 200,000
shares of the Company’s common stock at a price of $.15 per share. The option
expires in December 2015 and was fully vested when issued.  The
Company determined the fair value of the stock did not exceed the exercise price
on the date of issue.





During
2005, the Company adopted a Stock Option Plan covering 2,300,000 shares of the
Company’s common stock. In September 2005, the Company issued an option to its
president to acquire 250,000 shares of the Company’s common stock at a price of
$.20 per share under the Company’s stock option plan, subject to the approval of
the Plan by shareholders.  The Plan was approved at the shareholders
meeting on December 9, 2005. The option expires in ten years and was fully
vested when issued. The Company determined the fair value of the stock did not
exceed the exercise price on the date of issue.





Effective
January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share-Based Payments, which
requires companies to expense stock options and other share-based payments. The
Company did not issue any stock options or share-based payments in 2008 or in
2009.





The
following table summarizes employee stock option activity:





Employee Options outstanding
                                        
                                        Number of
                                          Shares
                                        
                                        
                                        Range of
                                          Per Share
                                          Option Price
                                          ($)
                                        
                                        
                                        Weighted
                                          Average
                                          Exercise
                                          Price ($)
                                        
                                        
                                        Aggregate
                                          Option Price
                                          ($)Outstanding
      and exercisable at December 31, 2007
                                        
                                        
                                        500,000
                                        
                                        
                                        
                                        .15
      - .20
                                        
                                        
                                        
                                        .19
                                        
                                        
                                        
                                        87,500Exercised
      during 2008
                                        
                                        
                                        (50,000
                                        )
                                        
                                        
                                        (.15
                                        )
                                        
                                        
                                        (.15
                                        )
                                        
                                        
                                        (7,500
                                        )Issued
      or cancelled during 2008
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Outstanding
      and exercisable at December 31, 2008
                                        
                                        
                                        450,000
                                        
                                        
                                        
                                        .15
      - .20
                                        
                                        
                                        
                                        .19
                                        
                                        
                                        
                                        80,000Issued
      or cancelled during 2009
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Outstanding
      and exercisable at December 31, 2009
                                        
                                        
                                        450,000
                                        
                                        
                                        
                                        .15
      - .20
                                        
                                        
                                        
                                        .17
                                        
                                        
                                        
                                        80,000Available for grant at December 31,
      2009
                                        
                                        
                                        2,775,000




27




4.
            Stock Option Plans
      (Cont'd)





Summary of Employee Options
Outstanding at December 31, 2009





Year Granted
                    
                    Number of Shares
                    
                    Expiration Date
                    
                    Exercise Prices
                      ($)Granted
      2005
                    
                    
                    50,000
                    
                    July
      25, 2015
                    
                    
                    .15Granted
      2005
                    
                    
                    250,000
                    
                    September
      27, 2015
                    
                    
                    .20Granted
      2005
                    
                    
                    150,000
                    
                    December
      20, 2015
                    
                    
                    .15





The
weighted-average remaining contractual life of the outstanding stock options at
December 31, 2009, and 2008 was 6 years and 7 years,
respectively.





Nonqualified Stock
Options





In July
2005, the Company issued an option to its legal counsel to acquire 25,000 shares
of the Company’s common stock at a price of $.15 per share. The option expires
in July 2015 and was fully vested when issued. The market value of the stock
equaled the exercise price on the date of issue.





A summary
of non-employee option activity follows:





Non-Employee Options outstanding
                                  
                                  Number of
                                    Shares
                                  
                                  
                                  Range of
                                    Per Share
                                    Option Price
                                    ($)
                                  
                                  
                                  Weighted
                                    Average
                                    Exercise
                                    Price ($)
                                  
                                  
                                  Aggregate
                                    Option Price
                                    ($)Outstanding
      and exercisable at December 31, 2007
                                  
                                  
                                  25,000
                                  
                                  
                                  
                                  .15
                                  
                                  
                                  
                                  .15
                                  
                                  
                                  
                                  3,750Issued
      or cancelled during 2008
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      and exercisable at December 31, 2008
                                  
                                  
                                  25,000
                                  
                                  
                                  
                                  .15
                                  
                                  
                                  
                                  .15
                                  
                                  
                                  
                                  3,750Issued
      or cancelled during 2009
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      and exercisable at December 31, 2009
                                  
                                  
                                  25,000
                                  
                                  
                                  
                                  .15
                                  
                                  
                                  
                                  .15
                                  
                                  
                                  
                                  3,750





Effective
January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share-Based Payments, which
requires companies to expense stock options and other share-based payments. The
Company did not issue any stock options or share-based payments to non-employees
in 2008 or in 2009.





The
following table summarizes information about non-employee stock
options:





Summary of Non Employee
Options Outstanding at December 31, 2009





Year Granted
                
                Number of Shares
                
                Expiration Date
                
                Exercise Prices
                  ($)Granted
      2005
                
                
                25,000
                
                July
      25, 2015
                
                
                .15


28





5.
            Income taxes





The
Company is organized under the laws of Bermuda.  Bermuda currently
imposes no taxes on corporate income or capital gains outside of
Bermuda.  The Company’s subsidiary is a U.S. corporation and is
subject to U.S. income tax and files income tax returns in the U.S. and the
State of Florida.  For 2009 and 2008, the subsidiary has net taxable
losses.  The subsidiary will have approximately $10,000,000 in net
operating losses to carry forward to 2010.  The remaining net
operating loss carry forwards expire in periods from 2010 through 2028 as
follows: $571,000 in 2010, $955,000 in 2011, $1,281,000 in 2012, $757,000 in
2018, $622,000 in 2019, $749,000 in 2020, $1,884,000 in 2021, $1,693,000 in
2022, $132,000 in 2023, $57,000 in 2024, $1,434,000 in 2026, $195,000 in 2027,
and $112,000 in 2028, $200,000 in 2029.  For financial reporting
purposes, a valuation allowance has been recognized to offset the deferred tax
assets relating to those carry forwards.





Significant
components of the Company’s deferred tax assets were as follows:





December 31,2009
                    
                    
                    2008Net
      operating losses
                    
                    $
                    3,619,000
                    
                    
                    $
                    3,500,000Accruals
      to related parties
                    
                    
                    265,000
                    
                    
                    
                    265,000Total
      deferred tax assets
                    
                    
                    3,884,000
                    
                    
                    
                    3,765,,000Valuation
      allowance
                    
                    
                    (3,884,000
                    )
                    
                    
                    (3,765,000
                    )Net
      deferred tax assets
                    
                    $
                    -
                    
                    
                    $
                    -





Components
of the income tax provision for the years ended December 31, are as
follows:




2009
                  
                  
                  2008Provision
      for income taxesCurrent
      provision (benefit) for income taxes
                  
                  $
                  (73,000
                  )
                  
                  $
                  (30,000
                  )Benefit
      of net operating loss
                  
                  
                  -
                  
                  
                  
                  -Deferred
      asset valuation allowance (reversal)
                  
                  
                  73,000
                  
                  
                  
                  30,000Net
      income tax provision (benefit)
                  
                  $
                  -
                  
                  
                  $
                  -





The
Company files income tax returns in the U.S. federal jurisdiction, and in
various state jurisdictions. The Company is no longer subject to U.S. Federal or
state income tax examinations by tax authorities for years before 2006, except
possibly in future years should it utilize any net operating loss originating
prior to 2006.





The
Company has reviewed and evaluated the relevant technical merits of each of its
tax positions in accordance with accounting principles generally accepted in the
United States of America for accounting for uncertainty in income taxes, and
determined that there are no uncertain tax positions that would have a material
impact on the financial statements of the Company.





6.
            Related party
      transactions





Oil and Gas Exploration
Activities





Pursuant
to a written agreement with respect to the Valley County Leases, the Company
uses an entity controlled by an individual who is a shareholder, officer and
director of the Company to perform geotechnical analysis of potential drilling
sites at a cost of $1,000 per site. The Company  made no payments for
the years ending December 31, 2009 or 2008.


29





6.
            Related party
      transactions (Cont.d)





Services





Through
May 2009, the Company paid a monthly retainer to the law firm of Angerer &
Angerer which had been litigation counsel to the Company for more than
twenty-five years and also served the Company in that capacity as well as others
including general counsel services, management services, public relations,
shareholder relations and representing the Company before state and federal
agencies for permitting.  The principals of the law firm included two
individuals who are collectively shareholders, officers and a director of the
Company.  The Company accrued and expensed $60,000 and $144,000 in
legal fees to Angerer & Angerer in 2009 and 2008, respectively. The Company
owes $300,000 to Angerer & Angerer at December 31, 2009.





Since
June 2009, the Company retained Robert J. Angerer, Sr. as legal
counsel.  Mr. Angerer has been litigation counsel to the Company for
more than twenty-five years and resigned as counsel on January 14,
2010.  As counsel for the Company he  served the Company as
litigation counse, but also provided the Company with general counsel services
and management services and represented the Company before state and federal
agencies for permitting.  Mr. Angerer, Sr. is also a shareholder,
officer and a director of the Company.  The Company accrued and
expensed $11,600 in legal fees to Mr. Angerer, Sr. for 2009.





Also
since June 2009, the Company has retained Robert J. Angerer, Jr. who serves as
the Company’s corporate secretary and handles management services, public
relations, shareholder relations and management of the Company’s
website.  The Company incurred and expensed $0 in fees to Mr. Angerer,
Jr. during 2009.





The
Company expensed $10,908 and $8,193 for legal fees by the law firm of Igler
& Dougherty, PA, during 2009 and 2008, respectively.  The Company
owed Igler & Dougherty, PA $12,534 at December 31, 2009.  Mr.
Herbert D. Haughton, a shareholder of the firm, was elected a director of
Coastal Caribbean and of Coastal Petroleum in December 2005.





7.
            Concentrations of
      credit risk





All
demand and certificate of deposits are held by commercial banks. The Company has
no policy requiring collateral or other security to support its deposits,
although all demand and certificate of deposits with banks are federally insured
up to $250,000 under FDIC protection. Demand deposit bank balances totaled
$9,207 and $752 at December 31, 2009 and 2008, respectively. Certificate of
deposit balances were $85,255 and $84,765 at December 31, 2009 and 2008,
respectively.





8.
            Notes
      Payable





During
the first six months of 2009, the Company borrowed $48,198 from two individuals,
which was used to make annual rental payments on specific leases.  The
loan is non interest bearing and has no set repayment terms.  The
individuals were granted a 0.5% royalty interest in the leases for which the
borrowed money was used to pay rentals, which are located primarily in the
Starbuck prospect area in Montana.  These loans were repaid in January
2010.





During
August 2009, the Company borrowed $25,000 from a consultant and also agreed to
pay the consultant a fee of $25,000 to identify investors to consummate an
agreement and fund the Drilling Plan.  The funds from the loan were
used to pay the Company’s annual corporate fee to Bermuda as well as certain
other operational expenses.  The loan is non interest bearing and has
no set repayment terms.  No investor agreements have been consummated
by the consultant at December 31, 2009, therefore the $25,000 loan is not
currently due and the $25,000 fee has not been earned.


30





9.
            Subsequent
      events





On
January 14, 2010, the Company and Coastal entered into a letter agreement with
Robert J. Angerer, Sr. for the funding of immediate cash needs and granting Mr.
Angerer an option to fund the Company’s and Coastal’s future
obligations.  Under the agreement Mr. Angerer provided compensation to
the Company including $300,000 cash and the forgiveness of $150,000
of  legal fees owed to his law firm, Angerer & Angerer,
forgiveness of $21,500 in director fees owed to him and credit of $240,000 for
the completion of the Company’s purchase of leases on which there is a Red River
oil and gas development prospect.  In return, Mr. Angerer was issued
14,400,000 Rule 144 restricted shares of the Company’s common stock and provided
an option to further fund the Company.  Mr. Angerer may exercise up to
four options by paying $3 million for each option beginning three months after
the date of the agreement and thereafter in three month intervals.  In
return for the funding, Mr. Angerer would earn up to a total of 36% of the
Company’s operations in North Dakota and Montana in increments per exercised
option and a 20% interest in Coastal Petroleum.  There is also one
extension available to extend the time to exercise the first option for three
months in exchange for the payment of $50,000. Simultaneous with this
transaction, Mr. Angerer resigned as the Vice President of both the Company and
Coastal, but will remain as a Director and the Chairman of the Board of
Directors for both the Company and Coastal.





Item
      9.
            Changes in and
      Disagreements with Accountants onAccounting and
      Financial Disclosure




None





Item
      9A.
            Controls
      and Procedures





a.
              Management’s
      annual report on internal control over financial
      reporting.





1.         Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934.  Our internal control over
financial reporting is a process designed to provide reasonable assurance that
assets are safeguarded against loss from unauthorized use or disposition,
transactions are executed in accordance with appropriate management
authorization and accounting records are reliable for the preparation of
financial statements in accordance with generally accepted accounting
principles.





2.         Internal
control over financial reporting is a process tailored to the Company’s unique
circumstances, designed under the supervision of the Company's Chief Executive
and Chief Financial Officer, and effected by the Company's Board of Directors,
its consultants and other personnel, taking into account the small size of the
Company, small number of employees and others involved in the Company’s
finances.  The process uses a system of checks and balances to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:





·           pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the Company's assets and the review
of those transactions and dispositions by the Company’s compliance
officer;


·           provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that the Company's receipts and expenditures are
being made only in accordance with authorizations of management or the Company's
Board of Directors; and


·           provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material adverse effect on the Company's financial statements.


31





The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated
Framework.





3.         As
required by Rule 13a-15(b) under the Exchange Act, management carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that assessment, management believes that, as of December 31, 2009, the
Company’s internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f), is effective based on the COSO
criteria.





4.         This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.





b.
            Changes
      in internal controls. The Company made no changes in its internal
      control over financial reporting that occurred during the Company’s fourth
      fiscal quarter that has materially affected, or which is reasonably likely
      to materially affect the Company’s internal control over financial
      reporting.


32


PART III





Item
      10.
            Directors and
      Executive Officers of the
Company





Directors





As of December 31, 2009, the board of
directors included three members, two of whom, Mr. Ware and Mr. Angerer, also
serve as executive officers.  In October of 2008, Directors Anthony
Randazzo and Matthew Cannon resigned, citing personal reasons.  Their
positions have not been filled and the board will remain divided into three
classes, with each class serving a term of office of three years or until such
time as their successors are elected, qualified, and assume
office.  One class currently has no directors.  The Company
has not held an annual meeting since the annual meeting held in December 2005
due to the high cost of holding such a meeting.  Therefore, the
directors whose terms expired at the annual meetings to be held in 2007 and 2008
continue to serve until their successors are elected and assume
office.





Name
              
              Director
                Since
              
              Other Offices Held
                With the Company
              
              Age and Business Experience For the
                Past Five YearsDirectors
      With Three Year Terms Expiring at the 2008 Annual Meeting:Phillip
      W. Ware
              
              1985
              
              President,
      Chief
                Executive
      Officer and
                Principal
                Accounting
      Officer
              
              Mr.
      Ware, age 60, has been employed by Coastal Petroleum Company since
      1976.  He has served as President of Coastal Petroleum since
      April 1985.   Mr. Ware is a 1975 graduate of the University
      of Florida and is a pro-fessional geologist registered with the State of
      Florida.  Mr. Ware’s education and experience in geology and
      petroleum geology in particular as well as his many years with the Company
      has led the Board to conclude that he is valuable to the Company and
      should serve as a director of the Company.Robert
      J. Angerer, Sr.*
              
              2003
              
              Chairman
      of the Board
              
              Mr.
      Angerer, age 63, is a partner in Oil For America, an oil exploration
      business formed in 2002, with operations primarily in North Dakota and
      Montana. He is a lawyer and an engineer and has been a member of the
      Florida Bar since 1974.  He was a partner in the Tallahassee law
      firm of Angerer & Angerer from 1994 until 2009.  He is a
      graduate of the University of Michigan and of Florida State University
      College of Law.  He has served as a director of Coastal
      Petroleum since 2003.  Mr. Angerer’s legal and engineering
      education and background as well as his experience in the oil industry and
      service to the Company in multiple roles, has led the Board to conlude
      that he is valuable to the Company and should serve as a director of the
      Company.


33





Directors
      With Two Year Terms Expiring at the 2007 Annual MeetingHerbert
      D. Haughton*
                      
                      2005
                      
                      None
                      
                      Mr.
      Haughton, age 68, is a banking, corporate and securities
      lawyer.  He is a shareholder in the Tallahassee, Florida law
      firm of Igler & Dougherty, PA, where he has practiced law since 1994,
      following his admission to the Florida Bar.  Prior to entering
      the practice of law, Mr. Haughton spent over 30 years in the banking
      industry serving as president and chief executive officer of three
      different community banks in Florida from 1977 to 1991.  He is a
      graduate of Cleary University and Florida State University College of
      Law.  Mr. Haughton’s financial and business background as well
      as his legal education and background and his past leadership to the
      Company have led the directors to conclude that he is valuable to the
      Company and should serve as a director of the Company.


* Members
of the Board of Directors Compensation Committee.





Executive
Officers





Phillip W. Ware has been President of
Coastal Petroleum and Vice President of Coastal Caribbean for many years and
became President of Coastal Caribbean effective March 1, 2003, and Robert J.
Angerer, Sr., became a director of Coastal Caribbean on January 30, 2003 and
Vice President of Coastal Caribbean on February 27, 2003 and served in that
position until resigning on January 14, 2010.  Effective August 18,
2005, Mr. Ware was appointed Principle Accounting Officer.





Officers of Coastal Caribbean are
elected annually by the board and report directly to it.





Only Mr. Ware received direct
compensation for his services as an officer of Coastal Caribbean or Coastal
Petroleum.  During 2009, all $125,000 of Mr. Ware’s compensation for
his services was accrued.  Mr. Ware devotes 100% of his professional
time to the business and affairs of Coastal Caribbean and Coastal
Petroleum.





The business experience described for
each director or executive officer above covers the past five
years.





We are not aware of any arrangements or
understandings between any of the individuals named above and any other person
by which any of the individuals named above was selected as a director and/or
executive officer.  We are not aware of any family relationship among
the officers and directors of Coastal Caribbean or its subsidiary except for the
father and son relationship between Mr. Angerer, Sr. and Robert J. Angerer, Jr.,
who serves as the Company’s Secretary.  Robert J. Angerer, Sr. is not
paid a salary or other compensation by the Company for this service as a Company
officer.  Robert J. Angerer, Jr. is not paid a salary, but is to be
paid an hourly compensation by the Company for his service as a Company
officer.


34





Compliance with Section
16(a) of the Securities Exchange Act of 1934





Section
16(a) of the Securities Exchange Act of 1934 requires the Company's executive
officers, directors and persons who beneficially own more than 10% of the
Company's Common Stock to file initial reports of beneficial ownership and
reports of changes in beneficial ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are required by the SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by such
persons. Based solely on its copies of forms received by it, or written
representations from certain reporting  persons that no Form 5's were
required for those persons, the Company believes that during the just completed
fiscal year, its executive officers, directors, and greater than 10% beneficial
owners compiled with all applicable filing requirements.





Code of
Ethics





The Company has adopted a Code of
Ethics applicable to principle executive and financial officers.  The
Code of Ethics is posted on the Company’s website at www.coastalcarib.com and may be
reviewed by following the link entitled “Corporate Governance
Materials.”





Item
      11.
            Executive
      Compensation





Compensation
Discussion and Analysis





Compensation
Philosophy





The
Company’s executive compensation program reflects the Company’s philosophy that
executive’s compensation should be structured so as to closely align executives’
interests with the interests of our shareholders. The primary objectives of the
Company in determining compensation are to emphasize operating performance
criteria that enhance shareholder value and to establish and maintain a
competitive executive compensation program that enables the Company to retain
and motivate a highly qualified executive who will contribute to the long-term
success of the Company. When used in this Compensation Discussion and Analysis
section, the term “named executive officer” means the person listed in the
Summary Compensation Table.





Consistent
with this philosophy, we seek to provide compensation for the named executive
officer that is similar to comparable companies in the oil and gas industry. In
making these determinations, we annually review each compensation component and
compare it to market reference points. The application of our compensation
philosophy to our named executive officer is described below in this
Compensation Discussion and Analysis section.





Executive
Compensation Program Design





The
objective of the Company and the Compensation Committee is to attract, retain
and motivate the most highly qualified executive officer who will contribute to
the Company’s goals by consistently delivering exceptional performance while
working within the annual budget of a development stage Company. In order to
accomplish the Company’s goals, we believe compensation paid to the executive
officer should be designed around a combination of a competitive based salary
combined with performance-based pay including equity-based or other incentives
which thereby align the interest of our executive officer with those of the
Company’s shareholders.





The
compensation package of the indicated named executive officer during the year
ended December 31, 2009, consisted almost entirely of base
salary.





At the
request of the Compensation Committee, our compensation program is reviewed on
an annual basis to ensure it meets the objectives of our compensation program
and is benchmarked with the market.  Prior compensation from the
Company, such as gains from previously awarded stock options, is not generally
taken into account in setting other elements of compensation, such as base pay
and long-term incentive awards. We believe that our executive officer should be
fairly compensated each year relative to market pay levels of our peer groups
and internal equity within the Company.


35


Compensation
Program Benchmarking





The
Compensation Committee endeavors to conduct its review on an annual basis for
the named executive officer to ensure that our compensation program works as
designed and intended. This review by the Compensation Committee also
facilitates discussion among the members of the Compensation Committee regarding
our compensation program.  The Compensation Committee has not retained
the services of a compensation consultant during 2008 or 2009.





Compensation
Program Overview





Following
is an overview of the principal components of our compensation
program:





How Amounts for Compensation
Components are Determined





In
addition to the information provided above, following are other details on
specific compensation components for 2009:





2009 Base Salary.Base salary
level of the named executive officer is determined based on a combination of
factors, including our compensation philosophy, market compensation data,
competition for key executive talent, the named executive officer’s experience,
leadership, achievement of specified business objectives and contribution to the
Company’s success, the Company’s overall annual budget for merit increases and
the named executive officer’s individual performance. In the Compensation
Committee’s first meeting of each year, the Compensation Committee conducts an
annual review of the base salary of our named executive officer by taking into
account these factors.





The base
salary of the named executive officer did not increase during 2009 based upon
the factors set out above.  The Compensation Committee focused on the
Company’s annual budget and the beginning of new operations in an effort to
establish production and revenue for the Company.





2009 Long-Term Incentives.The Company has in the past provided long-term
incentives.  Primarily this has been done through the issuance of
stock options, however there is no set program or requirements for issuance of
the stock options.  Instead, stock options may be issued at the
discretion of the Compensation Committee in conjunction with the Board of
Directors.





In
addition to our philosophy, internal equity,current share price, and
individual performance during the prior year are considered. We do not target
long-term incentive opportunities to be a particular percentage of total
compensation. The Compensation Committee did not grant any stock options in 2009
to any individuals (including our Chief Executive Officer).





Another
long-term incentive used in the oil and gas industry is the granting of
overriding interest in wells to be drilled.  On June 22, 2005, the
Company approved of its subsidiary granting such an incentive to Mr. Ware and
that incentive was granted as a 1% overriding interest in any well that he
recommends that is drilled by the Company or its subsidiary Coastal
Petroleum.  No payments under this incentive plan were earned or paid
during 2009.





Retirement and Other
Benefits





We
currently do not offer retirement programs within the Company that are intended
to supplement the employee’s personal savings and social security. However, the
Company contributes to the SEP-IRA of the named executive
employee.  The Company believes that this contribution assists the
Company in maintaining a competitive position in terms of retaining our named
executive employee.


36





Other
Benefits





The
Company does not provide the named executive officer with perquisites or other
personal benefits.  The Company does provide healthcare insurance for
its named executive officer, which the Company believes assists in maintaining a
competitive position in terms of retaining him.





Board
Process and Independent Review of Compensation Program





The
Compensation Committee is responsible for determining the compensation of our
directors and our Chief Executive Officer. In addition, the Compensation
Committee is authorized to exercise all the powers granted to it in its charter.
The Compensation Committee charter provides that the Compensation Committee will
have access to the necessary corporate resources to carry out its charter
authority.





For our
Chief Executive Officer, the Compensation Committee evaluates and assesses our
Chief Executive Officer’s performance related to leadership, financial and
operating results, board relations, and other material considerations. These
considerations as well as market information concerning compensation for similar
positions are then incorporated into the Compensation Committee’s compensation
adjustment decisions. Market information is obtained through various sources
including reference to materials published by the American Association of
Petroleum Geologists (AAPG) annually in their AAPG
Explorer.  These materials review compensation being paid to
geologists holding various degrees and of varying years of experience in oil and
gas companies across the country.





The
following table sets forth the compensation of the President of the Company, Mr.
Ware, who served as our Chief Executive Officer and Principal Financial Officer
for the three years ending with 2009.  We have determined that Mr.
Ware is our only named executive officer pursuant to the applicable rules of the
SEC (the “named executive officer”). No other company employee received $100,000
or more in total compensation. Mr. Ware’s current base salary is
$125,000.





(Intentionally
left blank)


37





Summary
Compensation Table





Name
      and Principal Position
                          
                          Year
                          
                          Salary
                            ($)
                          
                          
                          Bonus(1)
                            ($)
                          
                          
                          Stock
                            Awards
                            ($)
                          
                          
                          Option
                            Awards
                            ($)
                          
                          
                          Non-Equity
                            Incentive
      Plan
                            Compensation
                            ($)
                          
                          
                          Change
      in
                            Pension
                            Value
      and
                            Nonqualified
                            Deferred
                            Compensation
                            Earnings
                            ($)
                          
                          
                          All
      Other
                            Compensation(2)(3)
                            ($)
                          
                          
                          Total
                            ($)Phillip
      W. Ware, Chief Executive
                          
                          2009
                          
                          
                          125,000
                          (4)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          18,750
                          
                          
                          
                          143,750Officer,
      President,
                          
                          2008
                          
                          
                          125,000
                          (5)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          18,750
                          
                          
                          
                          143,750Chief
      Financial Officer, Director
                          
                          2007
                          
                          
                          125,000
                          (6)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          18,750
                          
                          
                          
                          143,750





(1)
            Annual
      Cash Bonus Award - Annual incentive awards, which were paid during the
      year or immediately following the year
  indicated.


(2)
            Other
      Annual Compensation - All additional forms of cash and non-cash
      compensation paid, awarded or earned, including automobile allowances,
      401(k) Plan matching contributions, and club membership
      costs.


(3)
            Payment
      to SEP-IRA pension plan (2007, 2008 and 2009 amounts have been
      deferred).


(4)
            Payment
      of 125,000 was accrued and not paid in
2009.


(5)
            Payment
      of 125,000 was accrued and not paid in
2008.


(6)
            Payment
      of $89,700 was accrued and not paid in
2007.





The
Company does not have a contract with its named executive officer nor does it
have a change of control employment agreement which would be effective upon
change of control of the Company or in the event of termination of
employment.


38


Stock
Options





The Company has not adjusted or amended
the exercise price of any stock options during the year end December 31,
2009.





The
following table sets forth certain information with respect to outstanding
equity awards at December 31, 2009, held by the named executive
officer.





Outstanding
Equity Awards at Fiscal Year-End